The divergence of US worker and corporate interests
In reading about profit increases of some U.S. multinationals due to robust overseas business and the weak dollar, while the U.S. economy faces a protracted downturn, it has occurred to me that the divergence between U.S. worker and business interests has reached a critical juncture. Before globalization, most U.S. companies earned their business in America due to products largely produced in the United States. As the U.S. economy prospered or suffered, both U.S. companies and workers suffered along with it. This connection is over.
And it remains to be seen whether a set of policy responses exists which can re-align business and consumer. Therefore, Americans are faced with some tough choices to maintain a living standard: try and soak the rich and re-distribute income, redouble efforts to increase the quality of U.S. education and U.S. worker quality, or emigrate to lower cost locales.
Today, most large U.S. companies have a significant portion of their product markets overseas. This is true with Technology companies like Dell and Microsoft, for basic materials enterprises like DuPont and for consumer products companies like Mattel. What this means for individual companies is two-fold:
- Products are no longer manufactured in the United States, meaning U.S. companies have less vested interest in the education, social safety net, living standard, and wage structure of most U.S. workers.
- A large percentage of revenue comes from outside the United States. Therefore, companies have less of a vested interest in the economic fortunes of the U.S. economy as a whole.
To be sure, these same factors are true for large multinationals in other developed countries outside of the United States. However, in Europe, many products that would be manufactured in China and other Asian countries are manufactured in former communist countries that are now part of the larger EU. By granting admission to former Eastern Bloc countries, the EU is attempting to align interest across the gamut of European nations.
However, the U.S. does not have such an arrangement with its export markets outside of the U.S. and its manufacturing bases in Asia. Ultimately what this means for U.S. workers is that U.S. companies have less interest in the U.S. economy and U.S. workers; the interests of U.S. companies and the country governing them have diverged. The U.S. economy can sink. Yet, corporate profits for many enterprises could continue to rise.
Moreover, the weak dollar, a sign of deteriorating standards of livings for U.S. consumers, can be a boon for U.S. companies which earn greater amounts in foreign countries due to dollar weakness. Companies like IBM, which derive a majority of their earnings from abroad, do not necessarily wish to see the dollar strengthen.
All of this is worrying for future U.S. economic fortunes because it sets up a divergence of interests between capital and labor. This has been all fine and good as asset prices were increases. But with assets prices falling, the average American finds herself loaded up with debt and in fear of losing her job, creating perfect conditions for a class struggle between capital and labor.
One potential course of action comes from politics. And we can see this issue playing out in the Presidential debate between John McCain and Barack Obama regarding tax issues. Obama seeks to redress the divergence of interests between capital and labor by redistributing income through tax policy. McCain would like to continue with the suply side trickle down tax policy that has set up this divergence. Nevertheless, while politicians may try to exploit this situation through tax policy, longer term, it is very much up in the air as to what specific measures can be taken to re-align business and consumer interests.
After all, Chinese workers cost much less to manufacture goods. Indian workers are often better educated and cheaper than U.S. service sector employees. And Asia and many emerging markets are growing at rates far in excess of the US. Why should businesses not expand abroad to cut costs and capture markets in these areas? What allegiance do U.S. companies have to American workers when they face global market competition from a host of foreign multinationals?
These are troubling questions which reveal the Achilles heel of globalization as the divergence of consumer and business interests domestically. From a U.S. worker standpoint, the long-term solution may lie in education, personal savings, and emigration. In an increasingly globalized world, U.S. workers cannot rely on U.S. companies’ loyalty to remain employed. They are in competition with well-educated and hard-working cheap labor abroad.
In order to maintain a stable living standard, Americans will have to move ino value-added jobs with less potential for foreign competition. The thought here is that as American workers face increasing competition from lower cost workers abroad in a game of global wage arbitrage, American workers are best served by moving up the value chain to highewr wage, higher skilled jobs. But, this will certainly not be enough. Not every American can be a highly educated post-graduate trained worker. And this means a reduction in living standard for some.
That said, reducing consumption and debt and increasing savings will leave Americans less exposed to falling standards of wealth. And this increased savings will lead to increased investment and benefit the American economy over the longer term. Nevertheless, a nagging feeling that some will get left out in the cold still exists. Yes, America can change tax policy toward the middle class. Yes, American workers can try to increase their intellectual capital and make themselves more desireable in global labor competition. And yes America as a ociety should save more, especially in light of the most ecent credit crisis.
But, even with all that, America faces a tough future. This is not 1948 with Europe and Japan in tatters, Russia and the Eastern Bloc in the grips of communism and China about to move in that direction. And U.S. companies had to manufature at home as the world was much less inter-connected. As a result, America reigned supreme. Today, 60 years later, competition is much more fierce. In 2008, the American worker is simply not as sought after.
That leaves American workers with one final choice: emigrate and look for greener pastures elsewhere.