THE INCOMPARABLE PROF. MICHAEL PETTIS

 

Income inequal­ity means US debt will con­tinue to increase

Michael Pet­tis is a fin­ance pro­fessor at Pek­ing Uni­versity and a senior asso­ciate at the Carne­gie China Cen­ter Michael Pet­tis

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While much of the debate about lim­it­ing US gov­ern­ment debt assumes that rising debt is a con­sequence of prof­ligacy on the part of Wash­ing­ton poli­cy­makers, the prob­lem is in fact struc­tural.

Amer­ic­ans are forced to choose between rising debt and higher unem­ploy­ment largely because of the level of income inequal­ity — exacer­bated by their large trade defi­cit — that has sharply reduced the demand for US busi­nesses and man­u­fac­tur­ers.

The rise in US income inequal­ity is the key driver of debt. Because the wealthy save a much lar­ger part of their income than do work­ers or the middle class and use a much smal­ler part for con­sump­tion, rising income inequal­ity reduces over­all con­sump­tion and forces up sav­ings by effect­ively trans­fer­ring income from high con­sumers (ordin­ary Amer­ic­ans) to high savers (the wealthy).

If the higher sav­ings fun­ded higher invest­ment by US busi­nesses, this would be a good thing for the eco­nomy. Lower con­sump­tion would be bal­anced by higher invest­ment, with total demand remain­ing the same in the short term and rising in the longer term as more invest­ment caused growth to accel­er­ate.

But must more sav­ings lead to higher invest­ment? This belief is at the heart of sup­ply-side eco­nom­ics but, while it was true many dec­ades ago when busi­ness invest­ment was mainly con­strained by scarce sav­ings and the high cost of cap­ital, it is no longer true today — when it is con­strained mainly by weak demand.

Busi­ness invest­ment has not risen in line with the sav­ings of the wealthy. This cre­ates a prob­lem for the eco­nomy. If lower con­sump­tion is not bal­anced by higher invest­ment, total demand must decline and in response busi­nesses will cut back on pro­duc­tion and fire work­ers. To pre­vent this hap­pen­ing, Wash­ing­ton typ­ic­ally does one of two things.

First, the US Fed­eral Reserve can imple­ment policies that encour­age house­hold bor­row­ing to fund addi­tional con­sump­tion. In that case, the reduc­tion in the income share of ordin­ary Amer­ic­ans is bal­anced by an increase in their bor­row­ing so the same level of con­sump­tion can be main­tained.

Second, Wash­ing­ton can itself bor­row and use the pro­ceeds to replace the demand lost by the reduc­tion in house­hold con­sump­tion. Bor­row­ing is effect­ively the oppos­ite of sav­ing and, by increas­ing the fiscal defi­cit, the US can undo the adverse con­sequences of rising sav­ings among the wealthy.

There is a third option for many eco­nom­ies. If a coun­try’s sav­ings rise faster than its invest­ment — or if demand declines rel­at­ive to pro­duc­tion — it can export the excess pro­duc­tion in the form of a trade sur­plus.

But the US can­not do this. Because of its open and well-gov­erned fin­an­cial mar­kets, the rest of the world prefers to off­load its excess sav­ings there so the US is a net importer, not a net exporter, of sav­ings.

This will hap­pen as long as for­eign cent­ral banks, busi­nesses, olig­archs and own­ers of fin­an­cial assets can employ their sur­pluses in unfettered access to Amer­ican stocks, bonds, factor­ies and real estate.

These net inflows push up the value of the dol­lar and make US man­u­fac­tur­ing less com­pet­it­ive, so rather than run trade sur­pluses to man­age excess sav­ings, the weak demand cre­ated by income inequal­ity is exacer­bated as Amer­ica runs the trade defi­cits needed to absorb excess for­eign pro­duc­tion.

To stop unem­ploy­ment rising, either the Fed must encour­age even more house­hold debt or Wash­ing­ton must run even lar­ger fiscal defi­cits.

The mis­take law­makers make is to assume that rising debt in the US is the con­sequence of irre­spons­ible beha­viour on the part of Amer­ican house­holds and the gov­ern­ment. In fact, it is a struc­tural prob­lem, and the choice Amer­ic­ans face is not between more debt and less debt but rather between more debt and more unem­ploy­ment.

As long as Amer­ic­ans are will­ing to accept high levels of income inequal­ity and large trade defi­cits, this is the tradeoff the US must con­tinue to suf­fer.

To get debt under con­trol without rais­ing unem­ploy­ment, Amer­ic­ans must elim­in­ate down­ward pres­sure on demand by revers­ing sev­eral dec­ades of policies that favour income inequal­ity or that allow for­eign­ers to dump their excess sav­ings and excess pro­duc­tion into the US.

That is why for all the excited debate, debt ceil­ings won’t limit the rise in US debt. They just allow Con­gress to pre­tend that it is doing something mean­ing­ful about Amer­ica’s sur­ging debt bur­den.

 

Time to retire the ‘emer­ging mar­kets’ label

Clump­ing the devel­op­ing world together obscures risks and oppor­tun­it­ies

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Humans have an innate desire to sort and cat­egor­ise the world around them. The eco­nom­ist Ant­oine van Agt­mael is no excep­tion. In 1981 at the World Bank, he coined the phrase “emer­ging mar­kets” as a more aspir­a­tional altern­at­ive to the term “third world”. The label has since become syn­onym­ous with a hotch­potch of fast-grow­ing nations con­sidered to be ris­kier invest­ment pro­spects than “developed mar­kets”. While it may have been a suc­cess­ful rebrand, for eco­nom­ists and investors the catchall term has become unhelp­ful.

Emer­ging mar­kets, which account for the bulk of the world’s pop­u­la­tion, are not a homo­gen­eous group. Rather, they con­sist of dynamic and highly diverse coun­tries at dif­fer­ent stages of devel­op­ment — and their com­pos­i­tion has changed vastly since the term became pop­u­lar. For instance, the break­neck growth of China and India makes them par­tic­u­lar out­liers when com­pared to fel­low EMs. Recent shocks have also under­scored the eco­nomic diversity across EMs. On the policy front, cent­ral banks in emer­ging Europe and Latin Amer­ica were par­tic­u­larly aggress­ive in rais­ing interest rates to get ahead of infla­tion in the after­math of the pan­demic and the war in Ukraine. Mean­while, some EMs have prudently built up for­eign cur­rency reserves and issued more home cur­rency debt mak­ing them less sus­cept­ible to crisis dynam­ics.

Volat­ile com­mod­ity mar­kets have also dis­tin­guished net energy export­ers from import­ers and those with crit­ical reserves. And ten­sions between the west and China are hav­ing dif­fer­ing eco­nomic impacts too, depend­ing on geo­graphy and dip­lo­matic rela­tions. Indeed, though trade lib­er­al­isa­tion since the 1990s helped most EMs to take off, the next phase of glob­al­isa­tion, which looks to be punc­tu­ated by rising pro­tec­tion­ism and friend-shor­ing, is set to have more dif­fer­en­ti­ated impacts.

This vari­ation makes the EM moniker increas­ingly unfit for mac­roe­co­nomic and invest­ment ana­lysis. The broad­brush label can obscure risks and oppor­tun­it­ies. For instance, the rising nar­rat­ive around EMs’ eco­nomic resi­li­ence — with fewer than anti­cip­ated debt defaults in the after­math of the pan­demic — risks play­ing down the pock­ets of vul­ner­ab­il­ity that still exist. Tur­key has a dearth of FX reserves, private sec­tor debt ser­vi­cing costs in Brazil and China are con­cern­ing, and Tunisia and Pakistan are on the brink.

Fin­an­cial mar­kets also still rely on the EM-DM dicho­tomy or other regional group­ings. But investors will want expos­ure to coun­tries likely to bene­fit from new trends, includ­ing the scramble for crit­ical min­er­als and “China plus one” sup­ply chain strategies. Indeed, dis­ag­greg­at­ing EM bonds, equit­ies and altern­at­ive assets, such as infra­struc­ture projects, on a coun­try or them­atic basis could help investors to unlock higher returns and enable devel­op­ing coun­tries to obtain more cap­ital. For that, access to reli­able coun­try-level data will be import­ant.

There have been numer­ous attempts to pop­ular­ise other group­ings. The Brics nations — Brazil, Rus­sia, India, China and South Africa — are per­haps the most fam­ous. Then there are “emer­ging and growth lead­ing eco­nom­ies”, or Eagles. Few have proved use­ful, given large eco­nomic dif­fer­ences in terms of trade, growth and fin­an­cial open­ness. Defin­i­tions also vary. Invest­ment indices focus on mar­ket access met­rics, while eco­nomic bod­ies prefer mac­roe­co­nomic thresholds.

The devel­op­ing world does not fall neatly into a single cat­egory. And, in a global eco­nomy hit by mul­tiple crises and geo­pol­it­ical upheaval, there are even greater upsides for eco­nom­ists and investors that can dif­fer­en­ti­ate between them. Per­haps it is time to retire the EM label alto­gether.

 

When It Comes to Big Tech, Enough Is Enough

July 27, 2023

Credit...Erik Isakson/DigitalVision, via Getty Images

By Lindsey Graham and Elizabeth Warren

Mr. Graham, a Republican, is the senior senator from South Carolina. Ms. Warren, a Democrat, is the senior senator from Massachusetts.

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The digital revolution promised amazing new opportunities — and it delivered. Digital platforms promoted social interaction, democratized information and gave us hundreds of new ways to have fun.

But digital innovation has had a dark side. Giant digital platforms have provided new avenues of proliferation for the sexual abuse and exploitation of children, human trafficking, drug trafficking and bullying and have promoted eating disorders, addictive behaviors and teen suicide. Parents like Kristin Bride, whose teenage son killed himself after being mercilessly cyberbullied, have shared heartbreaking stories with Congress and the public about the potentially deadly consequences.

Nobody elected Big Tech executives to govern anything, let alone the entire digital world. If democracy means anything, it means that leaders on both sides of the aisle must take responsibility for protecting the freedom of the American people from the ever-changing whims of these powerful companies and their unaccountable C.E.O.s. Today we’re stepping up to that challenge with a bipartisan bill to treat Big Tech the way we treat other industries.

A few Big Tech companies generate a majority of the world’s internet traffic and essentially control nearly every aspect of Americans’ digital lives. Platforms are protected from legal liability in many of their decisions, so they operate without accountability. Big Tech companies have far too much unrestrained power over our economy, our society and our democracy. These massive businesses post eye-popping profits while they suppress competition. Google uses its search engine to give preference to its own products, like Google Hotels and Google Flights, giving it an unfair leg up on competitors. Amazon sucks up information from small businesses that offer products for sale on its platform, then uses that information to run its own competing businesses. Apple forces entrepreneurs (and thereby consumers) to pay crushing commissions to use its App Store. A few Big Tech companies stifle all competition before it poses any serious threat.

Big Tech companies also prey on ordinary users. They vacuum up our personal data, often with little care for whether their practices are responsible or even legal. Some Big Tech platforms mislead us when we try to limit the data we share, and they regularly fall prey to massive data leaks that leave us vulnerable to criminal activity, foreign interference and disinformation. Adversaries in China and other countries often store or process our data. And if we want to know how our data is being used or why our posts are being taken down, good luck getting an answer. We’re usually in the dark about where our data goes or how it is used.

Enough is enough. It’s time to rein in Big Tech. And we can’t do it with a law that only nibbles around the edges of the problem. Piecemeal efforts to stop abusive and dangerous practices have failed. Congress is too slow, it lacks the tech expertise, and the army of Big Tech lobbyists can pick off individual efforts easier than shooting fish in a barrel. Meaningful change — the change worth engaging every member of Congress to fight for — is structural.

For more than a century, Congress has established regulatory agencies to preserve innovation while minimizing harm presented by emerging industries. In 1887 the Interstate Commerce Commission took on railroads. In 1914 the Federal Trade Commission took on unfair methods of competition and later unfair and deceptive acts and practices. In 1934 the Federal Communications Commission took on radio (and then television). In 1975 the Nuclear Regulatory Commission took on nuclear power, and in 1977 the Federal Energy Regulatory Commission took on electricity generation and transmission. We need a nimble, adaptable, new agency with expertise, resources and authority to do the same for Big Tech.

Our Digital Consumer Protection Commission Act would create an independent, bipartisan regulator charged with licensing and policing the nation’s biggest tech companies — like Meta, Google and Amazon — to prevent online harm, promote free speech and competition, guard Americans’ privacy and protect national security. The new watchdog would focus on the unique threats posed by tech giants while strengthening the tools available to the federal agencies and state attorneys general who have authority to regulate Big Tech.

Our legislation would guarantee common-sense safeguards for everyone who uses tech platforms. Families would have the right to protect their children from sexual exploitation, cyberbullying and deadly drugs. Certain digital platforms have promoted the sexual abuse and exploitation of children, suicidal ideation and eating disorders or done precious little to combat these evils; our bill would require Big Tech to mitigate such harms and allow families to seek redress if they do not.

Americans deserve to know how their data is collected and used and to control who can see it. They deserve the freedom to opt out of targeted advertising. And they deserve the right to go online without, say, some A.I. tool’s algorithm denying them a loan based on their race or politics. If our legislation is enacted, platforms would face consequences for suppressing speech in violation of their own terms of service. The commission would have the flexibility and agility to develop more expertise and respond to new risks, like those posed by generative A.I.

Our bill would set clear rules for tech companies and impose real consequences for companies that break the law. For the giant companies, anticompetitive practices — like exploiting market dominance, tying the sale of one product to another, charging customers different prices for the same product and preventing employees from working for competitors — would be prohibited. The bill would set a high bar for mergers and acquisitions by dominant Big Tech platforms and make it possible to block and reverse harmful deals.

Reining in tech giants will be hard, but it’s a fight worth fighting. If we win, Americans finally will have the tools they need to combat many online evils harming their children and ruining lives. And small businesses will have a fighting chance to innovate and compete in a world dominated by tech monopolies.

No company, no industry and no C.E.O. should be above the law. These reforms will ensure that the next generation of great American tech companies will operate responsibly while remaining on the cutting edge of innovation.

It’s time for Congress to act.

WILL TO POWER

It’s time to end the ‘era of the Great Distraction’

Opinion by George F. Will

Columnist

July 26, 2023 at 21:00 Sydney Time

Dazzling U.S. precision weapons in the Gulf War 32 years ago encouraged a theory that was dangerous because it was soothing: The era of industrialized wars — those in which the mass manufacturing capacities of the combatant nations would be decisive — had ended. This theory has been slain by a fact: Russia’s war to erase Ukraine.

Russian President Vladimir Putin’s aggression has revealed something astonishing to him — the myriad defects of his conventional armed forces. It has, however, awakened the United States to something alarming: Europe’s largest conflict since World War II has shown that the U.S. defense industrial base, which manufactured the materiel that produced victory in 1945, is inadequate for the world almost eight decades later.

The U.S. defense workforce is one-third what it was in 1985, during the Reagan-era buildup, when defense spending was 5.7 percent of gross domestic product. It is 3.1 percent today. The National Defense Industrial Association says that in the past five years, the “defense ecosystem” has lost a net 17,045 companies. This is partly because many small businesses recoil from the unpredictable cash flows from a government that cannot budget: The government has operated under continuing resolutions in parts of 13 of the past 14 years.

Politico’s Michael Hirsh reports that many components of munitions, planes and ships (including shell casings, fuses, parts of rocket motors and precursor elements of propellants and explosives) are made overseas, including in China. China has up to 50 percent of global shipbuilding; the United States has less than 1 percent. A surge capacity for defense production does not exist. Hirsh quotes Christian Brose, a former senior policy adviser to Sen. John McCain: “We could throw a trillion dollars a year at the defense budget now, and we’re not going to get a meaningful increase in traditional military capabilities in the next five years.” The fiscal 2024 defense budget is $842 billion.

As a senior U.S. military officer at NATO says, “Every war, after five or six days, becomes about logistics.” The Wall Street Journal reports that in a war with either Russia or China, “stocks of precision weaponry could be used up in hours or days.” The calculating men in Beijing know the impediments to what Rep. Mike Gallagher (R-Wis.), chair of the House Select Committee on China, considers most urgent: the manufacture and deployment of huge numbers of missiles and other high-tech munitions to East Asia.

Retired Air Force Gen. David Deptula calls the years since 9/11 “the era of the Great Distraction,” when we lost focus on the Chinese and Russian threats. Time will tell — soon — whether we have refocused too late.

 

Inside Starbucks’ Dirty War Against Organized Labor

By Megan K. Stack

Contributing Opinion Writer

• July 21, 2023

NOTTINGHAM, Md. — Agnes Torregoza came to this country when she was a toddler, brought from the Philippines by her parents. Her mother found a teaching job in the Baltimore County Public School District, and the family set about cobbling together a new life.

Both parents eventually got union jobs in the public schools and moved with their children into a prefabricated home in the unincorporated reaches of the Baltimore suburbs. Her parents, Ms. Torregoza explained, had very definite ideas about the aesthetics of the American dream — everything should be fresh.

“My parents are really into, ‘Oh, we’re in America,’” Ms. Torregoza, 20, said. “‘I want to have a brand-new house. I want to have a new car.’”

When it came time to forge her own path, Ms. Torregoza, a slight woman with a black fringe of bangs and exactingly applied makeup, puzzled over her options. She’d graduated from Baltimore Polytechnic Institute, a competitive magnet high school, and took some community college classes. She dreamed of attending a liberal arts college, but found the cost of tuition both unattainable and philosophically repellent.

“All these people who talked about race and class had spent so much money to go to school,” she said. “How can you talk about making things more equitable, but you’re spending $30,000 a year on tuition?”

So Ms. Torregoza applied for a Starbucks barista job in a strip mall near home. She’d heard about the coffee conglomerate’s generous benefits — tuition money, company stock, health insurance for part-time workers. But once she got to work, disillusionment set in.

The first thing she noticed: There never seemed to be enough people on the clock. Everybody rushed around while automated systems logged the speed of drive-through transactions — ideally, 30 to 40 seconds — and whether surveyed customers rated the baristas likable. Not that she had time to ruminate on her scores — Ms. Torregoza says she and her colleagues could hardly attend to basic hygiene. They often found themselves too frenzied to wipe down tables, clean the bathrooms or follow orders to wash their hands every half-hour, she said.

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Agnes Torregoza took a job at Starbucks because she was attracted by the company’s benefits.Credit...Jordan Baumgarten for The New York Times

Oddly, despite this state of affairs, Ms. Torregoza couldn’t get enough shifts. She dreamed of saving money, moving out on her own, maybe transferring to a Starbucks downtown — but for that, she’d need to work. She got, at most, 25 or 27 hours a week, which was considered generous for Starbucks, where baristas say they rarely get full-time hours and even struggle for the 20 they need to qualify for benefits.

Ms. Torregoza’s discontent was growing, and she wasn’t alone. She’d donned her green Starbucks apron just as a labor insurrection was exploding across the company. The hectic, high-risk pandemic shifts had racked up record profits for Starbucks, but left many of the baristas exhausted and embittered. Workers at one cafe after the next were voting to unionize — more than 330 of its thousands of locations so far. Their demands include better pay ($20 an hour minimum for baristas, with annual raises), fair and consistent scheduling and easier access to the benefits that Starbucks executives were always touting.

The Nottingham Starbucks voted to join Starbucks Workers United in June 2022 — and Ms. Torregoza and her colleagues stepped into a world of trouble.

The corporate dirty war that ensued — in Nottingham and at newly unionized Starbucks cafes across the country — draws a sobering picture of employee rights casually crushed and labor laws too weak to help. Starbucks continues to fight and appeal the many labor complaints pending against it and maintains that the company has done nothing wrong.

But these professions of innocence are countered by piles of testimony from workers and National Labor Relations Board findings suggesting that Starbucks has indeed illegally repressed employees’ rights. The company has so far racked up a staggering number of complaints from the agency. In 100 cases, many of which consolidate a number of incidents, regional N.L.R.B. offices have decided there is sufficient evidence to pursue litigation against Starbucks. That includes a nationwide complaint, consolidating 32 charges across 28 states, alleging that Starbucks failed or refused to bargain with union representatives from 163 cafes.

Starbucks lacks the glamour of Hollywood and the indispensability of UPS, but as strikes and union drives erupt across the economy, the coffee workers’ struggle illuminates the stark and sometimes insurmountable challenges confronted by ordinary American workers who try to exercise their right to organize.

That Starbucks is carrying on this campaign in plain sight may be the most damning aspect: Union busting is illegal, but consequences are inconsequential. The Starbucks case demonstrates that a large corporation can effectively bust a union with time, by dithering over details and exhausting legal appeals. According to national labor laws, an employer “must bargain in good faith.” But that is a squishy and essentially unenforceable rule. Starbucks may yet succeed in smothering one of the most energized labor movements of our time.

It’s important to understand what Starbucks has done — and what it hasn’t done. The company has been accused of deploying familiar anti-labor tactics, such as the shuttering of some union stronghold cafes. (Starbucks denies closing stores in response to union drives and blames other factors, such as crime.) Union activists reported being spied upon, harassed or fired on flimsy pretexts, complaints that Starbucks disputes.

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Credit...Jordan Baumgarten for The New York Times

But Starbucks has also done a lot of nothing — time-buying, morale-eroding, innocent-seeming nothing. The company dedicated to caffeinating the world turns out to be very good at moving slowly, and the inaction is devastating for the workers, many of whom are economically vulnerable. Starbucks, on the other hand, faces little risk. Even if the company eventually ends up losing cases on the final appeal — a stage that could take years — the N.L.R.B. is barred from imposing monetary penalties. The board can only order employers to “make whole” anyone who lost money and warn them to do better.

“We’d email them, and they weren’t responding,” said Marina Multhaup, a Seattle-based lawyer who represents all the Starbucks unions in the Pacific Northwest. “So we’d file a charge, which is really all we can do.”

“Months and months later,” Ms. Multhaup said, the National Labor Relations Board “agreed that Starbucks was not bargaining. And we go to a whole hearing about it. But meanwhile, it’s been months and months.”

Across the country, the coffee company has drastically slowed negotiations by insisting (illegally, according to the N.L.R.B.’s general counsel) on in-person bargaining. The demand for face-to-face negotiations has severely hindered coffee shop workers who unionized in part because their schedules were erratic. When union representatives join by Zoom, Starbucks representatives abruptly stand and walk out.

“It really puts on display the whole power differential,” Ms. Multhaup said.

Meanwhile, not a single Starbucks union member has gotten a contract, and the union says the company hasn’t suggested any counterproposals in response to union demands.

These passive tactics of delay and avoidance are quiet and undramatic — especially compared with the bloody strikes and picket brawls of America’s past — but remarkably effective at crushing nascent unions, labor experts warn. We hear a lot about hard-fought unionization votes at Amazon and Trader Joe’s and REI, but once the election excitement fades, half the certified unions never secure a contract, said Nelson Lichtenstein, director of the Center for the Study of Work, Labor and Democracy at the University of California, Santa Barbara.

“The main line of defense is, ‘We’re just not going to sign a contract,’ and that’s just as effective,” Mr. Lichtenstein said. “And if you don’t have it within a year, well, the turnover is so great, and some of the people are no longer there.”

“The labor law has become broken,” he said.

As for the N.L.R.B., the agency has made no secret that it’s struggling to keep pace. Despite surging interest in unions — including a 53 percent jump in union petitions from 2021 to 2022 — the agency operates on a tight budget and a skeleton crew. The number of field staff workers available to carry out labor investigations today is half of what it was 20 years ago.

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The Starbucks at the Nottingham Square mall in Maryland, where Agnes Torregoza works.Credit...Jordan Baumgarten for The New York Times

In the realm of unionized Starbucks cafes, some of which have clashed spectacularly with management, Nottingham isn’t known as a battleground. But Ms. Torregoza and her colleagues have nevertheless endured waves of fallout this past year.

Ms. Torregoza’s weekly hours gradually dwindled to 10 after the election, she said, forcing her to ration gas and delay veterinary visits for her cat, Charlie. Starbucks managers across the country are accused of slashing unionized workers’ hours to starvation levels. When Ms. Torregoza tried to supplement her income by picking up shifts in nearby Starbucks locations, as she had often done before, she found herself stonewalled. One manager, she said, finally remarked that Ms. Torregoza’s union work made her an unwelcome presence. (Ms. Torregoza has filed unfair labor practice complaints over this alleged discrimination.)

“They’re trying to get us to a point where we all just quit,” said Thanya Cruz Borrazas, who worked with Ms. Torregoza in the Nottingham cafe and in the union.

Meanwhile, the cafes that didn’t unionize were reaping fiercely desired improvements — the dress code was finally loosened and tipping by credit card, rather than just cash, was enabled.

Howard Schultz, a steely eyed, self-made former Starbucks chief executive, has told his story all over the country: the impoverished childhood in shoddy housing; the disabled and mistreated father; final vindication through the achievement of the American dream, a phrase he likes to use.

It’s a good story, and we bought it — we bought his coffee at a premium price, and we bought him, too. Hillary Clinton, by many accounts, planned to nominate Mr. Schultz for labor secretary if she’d won the presidential election in 2016. Mr. Schultz himself has toyed with the idea of running for president.

Mr. Schultz frequently lectures people about having built a “different kind of company” that respects the rights of employees, whom he calls partners. An empty chair gapes at every board meeting in a symbolic nod to the partners, who may or may not feel gratified at being represented by a piece of furniture.

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As Howard Schultz, foreground, spoke at a congressional hearing on union busting, a Starbucks worker watched emotionally.Credit...Kenny Holston/The New York Times

When the recent wave of labor organizing first started to foment among Starbucks workers in Buffalo, Mr. Schultz was one of the corporate luminaries who jetted into town to discourage the union. It didn’t work, though — in 2021, a Buffalo Starbucks became the first company-owned cafe to unionize, and other stores quickly followed. Mr. Schultz greeted the union with an indignation that has yet to fade. He has flouted an N.L.R.B. order to apologize to his workers and to film and distribute a video explaining his employees’ rights.

“Starbucks Coffee Company did not break the law,” Mr. Schultz replied flatly in March when lawmakers in Congress questioned him about the video.

The baristas from Nottingham were there that day. The union had paid for their train tickets to Washington so that they could watch Mr. Schultz testify at the Capitol. He hadn’t wanted to face lawmakers’ questions; he’d agreed to come only after he was threatened with a subpoena. But the baristas were ebullient. It was, in a sense, a business trip — a first for Ms. Torregoza, who wore her union T-shirt and took careful notes.

“It was very surreal,” she said. “My mom texted me, like, ‘Oh, I heard on NPR that Schultz is going to testify today,’ and I was like, ‘Yeah, I’ll be there.’”

The storied entrepreneur came across as icy and defensive, insisting Starbucks had done nothing wrong and that his anti-union stance was simply a “preference” that he had every right to express.

“Yes, I have billions of dollars,” he snapped when lawmakers referred to him as a billionaire. “I earned it. No one gave it to me. Anyone who keeps labeling this billionaire thing,” he added, “it’s your moniker constantly and it’s unfair.”

This intransigence seemed improbable from a public figure whose own life story begins with his father, a truck driver, suffering a severe leg injury on the job, which threw his family into desperate straits. Mr. Schultz, a child at the time, has called this a “defining moment” in his life.

Upbraiding him for “squeezing the people who made you rich,” Senator Ed Markey, Democrat of Massachusetts, invoked Mr. Schultz’s father.

“Your father had no rights and your family paid the price. That is how your workers now feel,” Mr. Markey thundered. “That is something I think, Mr. Schultz, that you just fundamentally don’t understand. These workers are just like your father, and they have no rights.”

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Mr. Schultz testified on Capitol Hill after he was threatened with a subpoena.Credit...Kenny Holston/The New York Times

Mr. Schultz appeared offended at hearing the young baristas compared with his father.

“You bring up my father,” he sputtered. “You don’t understand, sir, my father was a World War II veteran. He fought for this country in the South Pacific. You don’t understand.”

By the time labor experts and unionized workers testified to Starbucks’ abuses, Mr. Schultz and his team — a small army of nattily dressed advisers and lawyers — had left the building.

The baristas from Nottingham recalled watching him go, wondering if he’d look their way.

He didn’t.

Abillionaire who doesn’t want to be called a billionaire, who blusters when his company’s service workers get likened to the blue-collar worker who raised him — this is the chasm between our putative national values and our daily reality. We want to believe in a middle-class America where hard work weaves its own safety net. But millions of workers don’t earn enough money to cover basic expenses.

Unions helped create the American middle class and delivered livable pay, a two-day weekend, sick leave and overtime. But their power has largely faded. While some industries like Hollywood remain heavily unionized and a few private companies like UPS are still union strongholds, organizers have struggled to penetrate the service sector, which contains a majority of American jobs. Unions now enjoy the highest U.S. approval rating in decades, thanks partly to the deeply demoralizing experience many service workers endured during the pandemic and partly, no doubt, to the growing realization that neither corporate benevolence nor legislative nobility can be expected to save us.

The federal minimum wage, which has not increased since 2009, now sits at a plainly unlivable $7.25 an hour.

Ms. Torregoza was still in elementary school in 2012, when fast food workers began the “Fight for $15” to lobby for a minimum wage hike. That struggle has dragged on so long that the original (and still unmet) demand is outdated and insufficient. Most Americans, no matter their political beliefs, now believe that people should earn at least $20 an hour, according to recent polling.

In his testimony, Mr. Schultz repeatedly reminded lawmakers that the average Starbucks worker earns $17.50 — more than the minimum wage in all 50 states.

Then Senator Mike Braun, Republican of Indiana, told Mr. Schultz bluntly that the salary he was touting wasn’t enough to survive.

“Even $17, that’s not a living wage in this day and age,” Mr. Braun said. “Any large corporation shouldn’t necessarily be bragging about $15- or $20-an-hour wages.”

Ms. Cruz Borrazas worked in Nottingham through the pandemic. This, she recalls, required stifling her fear of getting sick while scrambling to make ever more drinks, ever more quickly, with fewer clocked-in colleagues to help. At one point, a burst pipe in the cafe forced her to slog through a few inches of water, trying not to think about the electrical wires or her sodden feet. In the middle of all that, she’d sometimes glance at the run report tallying the sales.

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Thanya Cruz Borrazas helped to unionize the Starbucks branch where she worked in Maryland.Credit...Jordan Baumgarten for The New York Times

“I’m over here, like, having palpitations because I don’t have time to get a sip of water,” she said. “And it’ll be like, they just made $700.”

Managers at the Nottingham cafe did not respond to phone messages; a former Nottingham manager who has since left Starbucks also declined an interview.

It was during the pandemic that Starbucks workers began to unionize in earnest — when the job started to feel physically dangerous, when the shifts got more hectic and baristas had to tangle with mask-refusing customers in between filling takeout and delivery orders.

“We felt very disposable,” said Alexis Rizzo, a Buffalo shift supervisor who became a key union organizer, only to be fired, she says, for being a few minutes late. (Starbucks has said her absences were more egregious.) “People were angry.”

Mr. Schultz speaks of Italian espresso bars and cushy benefits, but workers describe a reality that is harsher.

“You’re constantly seeing the company boast about how they have the best benefits in the industry, and then I see my co-workers on Medicaid because they don’t have enough hours or it’s too expensive,” Ms. Rizzo said. “It’s just a lot of the company pretending to be something they’re not.”

The baristas from Nottingham asked to meet me in downtown Baltimore, at a nonunion Starbucks in a bustling neighborhood near the Johns Hopkins University campus. Unlike their cafe, which is set among flat, broad roads between Lowe’s Home Improvement and Taco Bell, this Starbucks was urban and airy, with no drive-through in sight. I wasn’t sure why we were there.

At 22, Ms. Cruz Borrazas has a quiet, somewhat dreamy bearing, long curls tumbling over her shoulders. Born in Uruguay, she too was brought as a toddler to the United States, where her parents work blue-collar jobs in cleaning, construction and demolition. Ms. Cruz Borrazas has a green card but is not a citizen, and she never had health insurance until she managed to buy it through her job at Starbucks. After the union vote, she said, her hours were eventually cut so badly she risked dropping below the threshold to keep the benefits. She’d recently been cashing out her sick time to supplement her paychecks.

“Yes, there’s a light at the end of the tunnel,” she told me that day. “But it’s a long tunnel, and there are monsters.”

In her four years at Starbucks, she says, she never saw a barista get full-time hours. None of her colleagues, she told me, can afford to live alone.

But then she, too, mentions the American dream.

“I feel like the union is my only way out,” she said. “It’s the ticket to the middle class.”

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Credit...Jordan Baumgarten for The New York Times

I was starting to understand why we’d met in the city, the walkable streets, the cafe full of students and downtown workers, the suggestion of self-sufficiency.

When Ms. Torregoza talked about the union, she kept veering into discussion of her life in the far suburbs, which she considered sterile and unsustainable. There aren’t enough sidewalks, she said, and developments keep going up, like the Crumbl Cookies that had recently materialized a few doors down from Starbucks in the strip mall.

“It’s a little unreal,” she said. “It stresses me out, honestly.”

This was the malaise of a youth spent in the shadows of enormous companies hungry for low-wage workers to staff identical counters. Imagine being brought thousands of miles in pursuit of a dream and then, as you come of age, squinting into this landscape where there is nothing but selling and shopping, and trying to understand what it was supposed to look like.

Life was moving faster for Ms. Cruz Borrazas through the spring. She was taking on more union responsibility, using unscheduled hours to advise Starbucks workers who were organizing in other places. Invited by the Workers’ Rights Institute at Georgetown Law School, she spoke on a panel with Senator Sherrod Brown and Jennifer Abruzzo, the N.L.R.B.’s general counsel. But she had to send a few emails before getting the badly needed fee she said she’d been promised, leaving her feeling humiliated.

By the time spring gave way to summer, her hours had gotten cut so badly that she was officially broke — her bank balance dropped into negative territory. At that point, Ms. Cruz Borrazas’ health broke down. Malnourished and exhausted, she drove to the library one day but felt unable to get out of the car. So she drove to a hospital, where she was admitted for several days.

I heard first from Ms. Torregoza and later from Ms. Cruz Borrazas herself that upon getting out of the hospital, she’d quit her job at Starbucks and withdrawn from the union.

Starbucks can’t be blamed for Ms. Cruz Borrazas’ health crisis. Plenty of Starbucks workers are organizing under tremendous pressure without winding up in the hospital.

But listening on the phone as she described her breakdown, I noticed that material want and bodily fatigue were tangled into her thoughts. She’d been forcing things, she told me, trying to stand up to corporations, and that had been a mistake. To work and hustle as hard as she and her parents had always done, she told me, was “literally killing us … it’s killing our brains.” She’d been in service her whole life, she said, and she felt unable to continue.

“All I ever wanted was to go back to my own country, see my family, not have to work so much, not have to see my parents struggling so much,” she said. She told me that God had finally stepped in and told her that she could “just chill.”

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Credit...Jordan Baumgarten for The New York Times

I remembered her describing how as a child, she feared illness not because it hurt, but because the cost of seeing a doctor could cripple her family. I thought about how badly she wanted to make herself safe and make her family stable by securing a spot in the elusive middle class. She’d glimpsed a way forward with the union. And then she’d lost it.

The Nottingham union is “cold” now, Ms. Torregoza recently told me. It’s not one of the Starbucks sites where employees have voted to decertify the union. But turnover in Nottingham has been heavy, she said — about half the staff has left and been replaced over the past year or so — and, as the labor experts warned, union enthusiasm has withered.

The Nottingham workers never got a chance to bargain (Starbucks claims this is the union’s fault for insisting on Zoom meetings). As the union fervor dies down, Ms. Torregoza says her hours are starting to inch back up again. I suggested that the old status quo might be asserting itself.

“That’s not going to happen as long as I’m around,” Ms. Torregoza said.

But I think it’s possible. Maybe this quiet fading, engineered by a company with time and money to burn, is how the union dies.