There’s a huge difference between what is good for American companies and what is good for the American economy.
- Robert Scott, senior international economist for the Economnic Policy Institute, December 28, 2010
The deficit-fueling tax cuts for the rich that Barack Obama recently agreed to inherit and pass on from George W. Bush have been sold to the American public as necessary for the creation of jobs and the expansion of the “recovery.” Profits for the wealthy few, the argument goes, mean more employment and income for the people. What’s good for the business elite is good for the country, right?
Wrong. The trickle down theory is incorrect. As the Associated Press (no leftist organ) reported just 13 days after Obama signed the tax cut legislation, there is currenetly a savage disconnect between the profits of big U.S. capital and the needs of American working people. American corporate profits and stock prices are way up, the AP reported, but hiring is not. All but 4 percent of the nation’s top 500 companies reported profits in 2010. The stock market is approaching its highest peak since the financial meltdown of 2008. But the jobs dividend that is supposed to filter down to ordinary Americans when the American rich prosper is not in evidence. The official unemployment rate crept back to 10 percent (the real or functional unemployment rate is closer to 20 percent) at the end of the year.1 The New York Times recently highlighted the disconnect, noting – in a Sunday article titled “Profits are Booming, Why Not Jobs?” – that corporate profits have exploded “even as 15 million Americans remain mired in unemployment, a number without precedent since the Great Depression” and while the citizenry experiences “record levels of foreclosures and indebtedness.” At the current sluggish level of job growth, Times business writer Michael Powell notes, the U.S. economy will require 90 months just to replace the jobs lost in the Great Recession of 2008-2009. “And that does not account for the five million jobs needed to keep pace with a growing population.”2
But is this really a paradox as the title of the Times article suggests? There’s little mysterious about thedisconnect between profits and jobs for those willing to look beyond the trickle-down theory’s naïve assumption of an identity of interests between the rich and the rest of us. Some big American firms are showing higher profits because their competition has faded. Following the financial collapse of 2008, for example, the Wall Street giants Goldman Sachs and Morgan Chase no longer have to compete with Bear Stearns, Lehman Bros. and Merrill Lynch. Many jobs disappeared with the collapse of the defeated behemoths.
Many companies are sitting on capital and storing up liquidity like never before in the wake of the financial collapse. Firms who no longer believe they can borrow quickly have decided to keep a lot more cash on hand for precautionary purposes.
The Times reports that the low interest rates produced by the recession create an incentive for many companies to simply “exploit the spread between a zero funds rate and rates on Treasury bonds.” This permits corporations to “mark profits without selling much or hiring anyone.”
And then there’s the simple fact (straight out of Karl Marx) that a large reserve army of unemployed workers is a profits boon to corporate American in its ongoing top down class war on workers’ income and security. Desmond Lachman, a former managing director at Salomon Smith Barney who now works as a “scholar” at the influential right-wing policy group the American Enterprise Institute, speaks about this in candid terms. “Corporations,” Lachman told Powell, “are taking huge advantage of the slack in the labor market — they are in a very strong position and workers are in a very weak position,” he said. “They are using that bargaining power to cut benefits and wages, and to shorten hours.”3 That’s not unemployment as an anomaly for capitalist profits; it is joblessness as a source of them.
Lachman worries that this wage- and benefit-cutting strategy “serves corporate and shareholder imperatives” (Powell’s paraphrase) but “very much jeopardizes our chances of experiencing a real recovery” (Lachman). But how much does “American” capital really care about America’s recovery? Another great factor behind the profits-jobs disconnect is the basic fact that the big “American” companies are actually global outfits. Insofar as the rise in U.S. corporate profits is creating jobs at all, the employment dividend is being enjoyed overseas. The Economic Policy Institute (EPI) reports that American firms created 1.4 million jobs outside the U.S. in 2010, compared to less than 1 million in the U.S. Leading “American” firms like Caterpillar (which has invested in three new Chinese plants in the last two months), DuPont (which shrank its U.S. workforce by 9 percent and increased its Asia-Pacific workforce by 54 percent from 2005 to 2009), and Coca Cola (less than 13 percent of its 93,000 global employees are in the U.S.) are drawn to emerging markets and an increasingly skilled but low-cost workforce in south and east Asia. According to EPI’s senior international economist Robert Scott, “There’s a huge difference between what is good for American companies and what is good for the American economy.”4
As a leading DuPont official told the AP, “We are a global player out to succeed in any geography.” That’s an honest statement. Nationally bound U.S. taxpayers bailed out big U.S. capital to the tune of more than $14 trillion in 2008 and 2009. We did so out of the belief that such massive state-capitalist corporate welfare was required to rescue the American economy. But elite U.S. capital – owned by the top 1 percent that insisted on and predictably (under the openly plutocratic rules of American “dollar democracy”) received the preservation of the Bush tax cuts – is not nationally bound. Its agents are brazenly “global players” whose only allegiance is their own bottom line, pure and simple.
As the EPI’s founder Jeff Faux noted in his 2006 book The Global Class War: How America’s Bipartisan Elite Lost Our Future and What It Will Take to win it Back, America’s largely business-based and bipartisan governing class” holds no particular attachment to the people, communities, health, or even competitiveness of the United States per se. It’s nothing new. “As early as the 1950s,” Faux noted, “A Ford Motor executive corrected a U.S. senator who referred to the company as ‘an American firm. We’re an American company when we are in America,’ he said, ‘and a British company when we are in Britain, and a Brazilian company when we are in Brazil.” Forty years later, Ford Motor Company chief Alex Trotman told Robert Reich that “Ford isn’t even an American company, strictly speaking. We’re global. We’re investing all over the world. Forty percent of our employees already live and work outside the United States, and that’s rising. Our managers are multinational. We teach them to think and act globally.”5
As Faux observed, the ever more globalized “American” business class today makes no serious effort to reverse the nation’s declining performance and investment in the critical areas of education, research, infrastructure, health, energy efficiency, and the like. “Today,” Faux wrote, “business elites that cared about America’s future would be demanding new government investments” in quality education and national research and development and the like. “Instead, they send their lobbyists to demand more tax cuts, now.” At the root of this terrible reality is the simple fact that “American” capital no longer holds any special allegiance to, or interest in a specifically American community or economy.6 All who seek a just and sustainable American economy for the 21st century would do well to acknowledge this harsh and far from novel reality and let go of the sense that there is any real paradox in rising American corporate profits not creating good American jobs. This "failure" is the result of “American” capitalism working rather well for its masters and beneficiaries.
Paul Street (www.paulstreet.org)is the author of many articles, chapters, speeches, and books, including Empire and Inequality: America and the World Since 9/11 (Boulder, CO: Paradigm, 2008); Racial Oppression in the Global Metropolis (New York: Rowman & Littlefield, 2007; Segregated Schools: Educational Apartheid in the Post-Civil Rights Era (New York: Routledge, 2005); Barack Obama and the Future of American Politics (Boulder, CO: Paradigm, 2008); and The Empire’s New Clothes: Barack Obama in the Real World of Power (Boulder, CO: Paradigm, 2010). Street is currently completing a book titled Crashing the Tea Party, co-authored with Anthony Dimaggio. He can be reached at [email protected]
1. Pallavi Gogoi, ““Where are the Jobs? For Many Companies, Overseas,” Associated Press, December 28, 2010, athttp://news.yahoo.com/s/ap/20101228/ap_on_re_us/us_overseas_hiring. According to Gogoi, “unemployment remains high in the United States, edging up to 9.8 percent last month, even though companies are performing well.”
2. Michael Powell, “Profits are Booming, Why Not Jobs?” New York Times, Section 4, January 9, 2011. http://www.nytimes.com/2011/01/09/weekinreview/09powell.html
3. Powell, “Profits are Booming.”
4. Gogoi, “Where are the Jobs?”
5. Jeff Faux, The Global Class War: How America’s Bipartisan Elite Lost Our Future and What It Will Take to Win it Back (New York: Wiley, 2006), 87, 168. “The working men,” Marx and Engels insisted in 1848, “have no country.” One can debate the wisdom of that formulation, but it is clear that “American” capital has no fixed commitment to job creation or economic (and any other kind of) health in the United States or any geographically specific territory. “The need of a constantly expanding market,” Marx and Engels noted, “chases the bourgeoisie over the whole surface of the globe. It must nestle everywhere, settle everywhere, establish connections everywhere…To the great chagrin of Reactionists, it has drawn from under the feet of industry the national ground on which it stood.". Karl Marx and Frederich Engels, The Communist Manifesto (New York: Norton, 1988), 58, 72.
6. Faux, The Global Class War, 187-190.