Do not cite unless favorably. Comments welcome.


Talk on Krugman Paper 

(Globalization and the "Universal Market":

An Essay on Krugman's Analysis of Increasing Inequality)

URPE@ASSA January 4, 1999

Jim Devine

Economics Department

Loyola Marymount University

Los Angeles, CA 90045

December 30, 1998

(Revised January 6, 1999)

Due to the time limits imposed by the ASSA cutbacks on heterodox economics, I am going to simply talk about the main theory behind my alternative to the Krugman view of the world concerning widening wage dispersion. I'm going to ignore the empirical data I collected, along with discussion of events outside the US that aren't relevant to the theme. I even leave out any further references to Krugman, until the very end.


The basic issue is that of widening wage gaps, increased inequality amongst workers, even holding education and other individual characteristics constant. Instead of the bogus "skill biased technological change" theory (well criticized in James Galbraith's excellent book), I'm going to apply what I call the "ASSA cut-back theory of increasing wage dispersion," which is akin to the insider/outsider model subject to increasing "flexibility" imposed from the outside or from on high.

A. The cutbacks on the time available to heterodox economics follows the general pattern of the growth of the Universal Market that I sketch in my paper (including globalization as a crucial part).

  1. The ASSA used to be an umbrella organization that not only represented the hegemonic neoclassical school but also (due to long struggle) heterodox opinions, such as those represented by URPE.
  2. The ASSA umbrella was never a "free marketplace of ideas" but was instead a hierarchy, where rising to the top depends on the pleasure of those already at the top. Despite internal competition, the economics profession is a hierarchy akin to those of corporations. (In some ways, the economics profession is like capitalism itself, with overt competition and a covert system of command.)
  3. The ASSA umbrella's protection applies best to those who were already well-protected, working at hegemonic Big Name departments, presenting ideas within the bounds of the orthodoxy, pleasing Big Name economists who make the decisions about tenure, promotion, research grants, etc., and getting published in Big Name journals that are spawned by the hierarchy.
  4. The recent changes do not represent a simple matter of increasing market competition across the board. Rather, it follows Norman Thomas' old phrase (paraphrasing), "socialism for the powerful, free enterprise for the poor."
  5. The orthodox economists continue to be protected by the ASSA umbrella, insulated from the situation that faces the heterodox economists: the latter have less time to present their ideas (and true intellectual alternatives to the hegemonic vision) and are more hurried in doing so.
  6. The main result of this change is that inequality has been rising between the two sets of economists (in terms of the benefits of available time). Insiders benefit, while those on the margin lose, becoming outsiders.

B. This exclusion-from-the-umbrella model can be seen in the recent history of labor-power markets in the U.S.

1. The initial "umbrella" of the 1950s & 1960s might be seen along the lines of what Tom Weisskopf once called "security capitalism" (in Socialist Review, no. 57, May-June 1981) in which a significant sector of the US labor force enjoyed "good jobs" with high wages and job security, in the primary labor markets (independent primary, subordinate primary, and craft), backed by the welfare-warfare state in a situation where the US had economic, financial, and military hegemony in the capitalist world.

Of course, it should be stressed that minority and female workers were mostly excluded from this security capitalism, including the good jobs.

2. Instead of being a simple administrative fiat by ideologically-minded orthodox economists, the exclusion happened for several different reasons, starting with long-term trends and moving to more recent eras:

  1. The slow trend toward deskilling of skilled jobs.
  2. The slow rise of international investment.
  3. The slow rise of import competition and foreign competition for US exporters.
  4. The stagflation crisis of the 1970s, complete with high oil prices and slowing labor productivity growth.
  5. Breaking up of government-sponsored cartels such as the CAB and the ICC, along with anti-trust attacks on AT&T. This, together with increased international competition undermined traditional oligopoly positions.
  6. The cold bath of tight monetary policy in the early 1980s, in conjunction with a surge of cheap imports (and increased difficulty of selling exports) that resulted from high dollar exchange rates.
  7. The one-sided class war against labor unions and the welfare state.
  8. The downsizing of white-collar jobs primarily motivated by rentier domination of corporations in the 1990s.

All of these forces interacted with each other (and thus reinforced each other) to form a general trend toward marketization, the growth of the Universal Market, including the rise in the US economy's degree of international dependence. Though much of this process was part of the normal logic of capitalist accumulation, it should be stressed that the policy elites of the US government and the Bretton Woods institutions (the IMF and the World Bank) actively fomented the growth of the Universal Market.


3. The general increase in insecurity meant that in most cases, the primary labor market institutions of job security and similar benefits was no longer the profitable option to the capitalists.

Absent a broad socialist movement aiming to support to least powerful groups in the spirit of solidarity (organizing the unorganized), different groups within the US working class had different abilities to resist marketization and globalization. Because those with the most ability to resist the depredations of capital started with the higher incomes, this encouraged widening wage gaps as

  1. Deskilling hit those workers at the bottom of the hierarchy the hardest, since those in the middle layers and above in corporate hierarchies benefit from the separation of conception from execution and would never routinize their own jobs.
  2. The international mobility of capital and rising international trade competition hit those with routinized jobs in labor-intensive industries hardest (following Raymond Vernon's product cycle), glutting low-wage labor-power markets. In-person service jobs, which typically are in the secondary labor market, absorbed the unemployed.
  3. The cold bath of tight monetary policy of the early 1980s hit the blue-collar workers hardest who were least privileged by seniority "last hired, first fired" rules. It also hurt blue-collar workers competing with imports, pushing them down compared to white-collar workers. A small fragment of the unionized blue-collar workforce (the subordinate primary segment) was able to protect their "middle-class life style" while the majority joined the secondary labor market.
  4. The corporate downsizings of the 1990s hit the white-collar middle class in the independent primary labor market segment. Again, it was less likely to hit those with seniority, with established power. Those who left these labor markets entered the secondary labor markets for their skill categories or fell lower -- or refreshed the self-employed sector, slowing its slow abolition by capitalist competition. In many cases, people would leave primary jobs to go to secondary jobs on the periphery of the corporations they used to work for, within the same industries.
  5. The downsizing of welfare state programs, including the fall in the inflation-corrected minimum wage, hit those at the bottom of the wage hierarchy the hardest.
  6. The competition to attract capital by various countries by cutting wages, taxes, and environmental standards, and the resulting general stagnation of the world market, meant that instead of wages outside the US being pulled up by increased globalization, the wages of those most exposed to globalization in the US found their wages dragged down (relative to labor productivity).

The increased flexibility of labor relations, along with affirmative action and other civil rights efforts, meant that some minorities and especially women who had been excluded from the "good jobs" were able to get into the primary sector. However, they find that this sector had shrunk.

C. Krugman's emphasis (in his Brookings paper on globalization and elsewhere) is on explaining the widening gaps between the broad categories of skilled workers and unskilled workers. This excessive aggregation means that he misses the phenomenon of widening wage gaps within skill categories, industries, and corporations. The above theory -- emphasizing the collision of the marketization trends of capitalist accumulation with worker resistance to be marketed -- helps us understand these widening gaps.