Sept. 21, 2018—An article in the monthly magazine Industry Week came across my desk this morning, and it was a pleasure to read. Under the title “How Financialization Is Starving Manufacturing,” author Michael Collins reviews the work of Rana Faroohar, who, in her book Makers and Takers, systematically laid out how Wall Street’s takeover of the U.S. economy has savaged our manufacturing base, infrastructure, wages, and more. Collins takes special note of the fact that it was the systematic dismantling of FDR’s programs such as Glass-Steagall which has permitted this travesty to occur.
Collins provides some shocking stories about the way the Wall Street drive for short-term profits have led to successful efforts to force manufacturing companies to savage and shut down manufacturing capacity, in favor of stock buybacks and higher dividends for investors. A case-in-point was the hedge fund Trian’s forcing of DuPont to lay off 5000 workers in 2015, including 1700 from their R&D lab—all in the interest of driving up the share price. (It went up 210%!) He also cites the devastating results of financialization for American infrastructure and innovation.
This is an article well worth reading. A more ample review of Faroohar’s work was published on this blog in July of 2017, and is available here.
Collins implicitly indicates where the solution lies: a restoration of the policies of Franklin D. Roosevelt, which not only provided a firewall between commercial banking and speculation (Glass-Steagall and the Securities and Exchange Commission), but directed credit toward rebuilding the nation’s infrastructure and industry. In that respect FDR was carrying out the American System of Political Economy, an economic approach pioneered by Alexander Hamilton, and carried forward by John Quincy Adams and Abraham Lincoln.
The linchpin of the FDR approach was his Reconstruction Finance Corporation, which acted in a mode similar to the first and second Banks of the United States. Today that approach demands not only restoring Glass-Steagall (H.R. 790 and S. 881), but also establishing a new national credit institution, such as an Infrastructure Bank , which, like Hamilton, can turn trillions of dollars’ worth of U.S. debt into credit to rebuild and upgrade our rail system, water systems, and power supply.
Those two measures alone can turn the trick: starve speculation, not manufacturing.