Monday, February 6, 2012

Trading the soul of a nation

In my last post, The Plague, I began a discussion of influence of money in politics in our society, particularly in the areas of trade, taxation, and banking policy.  Since my epiphany after watching Dylan Ratigan's impassioned rant, I have read everything I can related to the monumentally important issue of money in politics.  When you are actually looking for it, you see evidence of this influence everywhere.  In this vein, two articles caught my attention in the last few weeks.

The first article appeared in the New York Times on December 29, 2011.  It was titled "Factory Jobs Gain, but Wages Retreat."  This little gem of good news described how General Electric recently brought back a factory to Louisville, Kentucky from China.  This factory builds hot water heaters, and the jobs were welcome relief to an area hit hard by unemployment.  Except there is a small catch:  the new American workers are being hired at a pay rate which is just over half what their predecessors made for the same work, with almost no hope of attaining a standard of living even close to what manufacturing jobs used to provide in this country.

The sad part is that local Kentucky officials celebrated GE's triumphant return.

The infuriating part is that this was the plan of multinational corporations all along.

The unforgivable part is that our politicians have traded the manufacturing soul of our nation for campaign dollars, and it didn't have to be that way.

Over the past 30 years, the United States has experienced a devastating loss of jobs in the manufacturing sector.  In 1959, manufacturing jobs represented almost 30% of the US economy.  In 2008, that figure was down to 11.5% and falling.  At the end of 2009, 12 million people worked in the US manufacturing sector, the lowest number since 1941.  Since 2000, the US has lost a staggering 32% of its remaining manufacturing jobs.  In the past decade, the United States has lost over 50,000 factories.  Fifty thousand.

The movement of jobs overseas by multinational corporations accounts for the majority of this loss.  For example, Since 2001, the United States has lost approximately 2.5 million manufacturing jobs due to trade with China and China's entrance to the WTO.  The United States currently has a $272 billion trade deficit with China in 2011.  The reason:  the United States government has allowed corporations to move jobs overseas without penalty.  In fact, our government REWARDS this behavior in the following ways:

  • Tax credits and incentives for companies that move operations overseas.
  • Allowing US corporations to hide huge amounts of profits in other countries, effectively allowing these companies to avoid paying taxes on this money.
  • Allowing US and foreign companies to bring products made by cheap labor into the country without tariffs or penalties, eliminating many the ability of US companies that haven't outsourced labor to compete.

For years we have heard the corporate excuses for the destruction of the American manufacturing sector. The mantra justifying "outsourcing" is well-known by now.  Corporations and their apologists have painted the picture that this job loss was inevitable, and is due to a "global economy."  These companies also claim that US consumers demand the cheapest goods possible, and that US companies can't compete without using cheap labor abroad.

This is, in reality, only part of the equation.  The bigger piece is that corporations have spent billions of dollars lobbying our politicians to get lawmakers to turn their heads while these jobs were shipping out.  For every dollar spent on lobbying, corporations get a return of $6 to $20.  When it comes to tax policy specifically, each dollar of lobbing money spent yields a staggering return of $220. These lobbying dollars have created tax policies that allow companies to hide their profits overseas while starving our treasury.  The reality is that few of the largest corporations pay anything close to the 35% tax rate our Republican politicians bemoan, and often pay no taxes due to overseas manufacturing operations.

The real reason that corporations have moved so many American jobs overseas is the fact that corporations have bought our politicians. As I discussed in The Plague, politicians have created trade and tax policies that favor corporations, not the national interests of the United States.  Remember, it is the top 1% in our society that makes 80% of all campaign contributions.  This money has purchased a trade policy that has both devastated the United States and enriched corporations beyond their wildest dreams.   Both political parties share blame in this catastrophe, as evidenced by President Clinton's signing of NAFTA and President Obama's recent signing of trade deals with South Korea and Colombia.  President George W. Bush's support of "free trade" is well known.

Think about it:  Prior to the 1980s, corporations made things here.  They did well, made a lot of money, but also had to pay their workers fairly.  The middle class that sprung from this dynamic made our country great.    It was from what the American dream was born.  Then, in the '80s, corporations went international, and new markets opened up.  Not just new markets for American goods, but new labor forces to make these goods.  These corporations realized that they could pay a worker in China a few dollars a day, or less, for work that they were paying US workers $17 an hour for.

Let's take Apple as an example:  The second article that caught my attention recently was a discussion in the New York Times of Apple's Chinese manufacturing operations, titled "Apple, America, and a Squeezed Middle Class:  How the US Lost Out on Iphone work."  It was a shocking revelation for a company that has presented itself to its young, upwardly mobile consumers as a socially responsible company, somehow different from the rest.

The reality of Apple is much different than perception.  To illustrate, the article tells the story of how Apple, on the eve of an Iphone launch, wanted a last-minute change to the screen design.  Most of the Iphones on the market are made in China, in enormous factories.  In the particular factory that was tasked with implementing the new screen design, the answer was simple:  The foreman awakened 8,000 workers who lived on site, in factory dormitories, at midnight, gave them a cookie and a cup of tea, and put them to work for the next 12 hours.  Workers in this factory work 12 hours a day, 6 days a week.

This begs the question of just how much cheaper is it to produce Iphones in China than the US?  While not easy to evaluate, economists estimate that it would cost about $65 more to produce the Iphone in the United States.

If I were in charge of US trade policy, Iphones from China just became $70 more expensive.  It wouldn't solve our manufacturing problem completely, but it would be a good start.

There is a moral component to this, both on US soil and abroad.  Domestically, we are allowing corporations to enrich themselves at record levels while destroying the middle class.  Because we have become so bitter and angry at each other, the office worker doesn't seem to care that the manufacturing worker is making half what the job used to pay.  (Sounds striking similar to the recent attacks on public employees).  The office worker may even believe that the factory worker is somehow responsible for the office worker's lack of a decent wage.  I discuss this attitude in my post Compassion Lost.  What that office worker doesn't understand is that this cycle is driving down the standard of living in the US at an alarming rate, and has ripple effects throughout the entire economy.

Abroad, the US consumer is causing the enslavement of workers such as those that live on the factory grounds in China, awakened at midnight, given a cookie and a cup of tea, and forced to work.  It is immoral, and each and every one of us is culpable to some degree.  It is why we need politicians who care about the future of our nation, and the future of our global society.

There is hard evidence that demonstrates another reality is possible.  One such piece of evidence is found in  Germany.

Germany currently has a booming manufacturing sector which represents about 20% of its economy.  Due to sound trade policies, Germany actually has a trade surplus with China.  It is hard for the United States to even imagine that possibility.  German manufacturing workers earn far more than their American counterparts because Germany has strong labor laws built into its constitution, and Germany has very high trade union membership.  In the case of the auto industry, German auto workers make twice what American auto workers make.  Additionally, they have, by constitutional construct, a cooperative relationship with management, and everyone has a seat at the table.  The German auto makers are still extremely profitable, and the CEO's still do very well for themselves.  It is how our system used to work.  Henry Ford was the man who believed his workers should be able to afford to buy the cars they made.

The irony is that when these same German companies bring plants to the US, they pay the American workers at the same low rates as the US car companies.  Plants are often located in "right to work" states, where there is very low union membership by design, and the German plants are often intensely anti-union.  Why do these German companies do this when they have such a wonderful example in their home nation?  Simply, because they can.  Our government allows and condones it.  

Make no mistake, it has come to the point in our society where most corporations don't have an ounce of patriotism or altruism in their DNA.  The only thing that these companies care about is profit.  That would be  just fine if we had a government that acted as a counterbalance to this mentality, and a provided a framework for a prosperous nation.  Remember, in the earliest days of our nation, our founders recognized that corporations existed by the grace of the government, not the reverse.  Instead, we now have a government that is bought and paid for by these corporations, and as a result has allowed disastrous trade policies.

In fact, I think the evidence supports the conclusion that outsourcing was part of the plan to drive US wages down in order to maximize profit.  Not just a predictable result, but the intended result.  The formula is simple:  Move jobs overseas. Shut American factories.  Utilize cheap labor in China and other countries.  When US workers are just desperate enough, move factories back home. Hire workers at half of their previous rate.  Call it a "globally competitive wage."  Sadly, our politicians are complicit in this plan to give the corporate masters a legion of low-educated, low paid workforce.  In Wisconsin, that complicity is embodied in Gov. Walker's slogan "Open for business."

And who says the American dream is dead?


  1. Awesome read! Well done!

  2. This is a great "on target" assessment of where we are and what we have allowed our country to become. But, who is listening? The Wisconsin uprising was barely covered by the press and the Occupy Movement changed the discussion somewhat. That being said, PAC's own our politicians and the airwaves.

  3. Another in the line of well-written pieces, I so enjoy your work. To expand a bit on trade agreements, the NAFTA that Clinton signed was put forward by Bush Sr., fashioned after his Canadian FTA from a few years earlier. Bush Jr. spread it through South and Central Amer. in his day, except that Costa Rica refused any part of it.