Wayne O’Leary

Following the Money

I recently came face to face, in a small but intimate way, with the manufacturing crisis at the heart of America’s ongoing jobs conundrum. After years of faithful service, our family steam iron had at last given up the ghost and needed replacement. A search of household-appliance stores revealed that the brand last purchased, General Electric, was no longer on the market; we settled instead on a similar Black & Decker model.

B&D, an all-American company established in Baltimore in 1910, is now headquartered in nearby Towson, Md. That’s about the extent of its US affiliation. Better known as a power tool manufacturer, B&D got into the small appliance business in 1984, acquiring GE’s housewares division, longtime producer of steam irons. However, whereas GE had manufactured its irons, including ours, in Bridgeport, Conn., B&D’s version comes from the People’s Republic of China. Today, B&D makes few, if any, of its products in the US; this includes the famous power tools upon which the company’s reputation largely rests. Rather, it bills itself as a firm engaged in the design and importation of manufactured items, not in their actual manufacture. In other words, B&D contributes little to the American economy except insofar as it adds to the negative US balance of trade.

B & D’s outsourcing of factory jobs — its production shifted largely to India and China in the 1990s — has been good for the bottom line; the firm is a $6 billion company that made hundreds of millions of dollars in the course of the Great Recession, hardly skipping a beat as domestic manufacturing jobs disappeared down a black hole.

That’s because, like most of the Fortune 500, it is no longer in any real sense an American corporation, but rather a multinational whose expectations and loyalties are increasingly tied to the global economy, not the economy of its home country, which is little more than a mailing address. In 2007, ABC News reported that American companies contributing to the Dow-Jones industrial average acquired 40% of their profits overseas. That’s no anomaly; according to the rating agency Standard & Poor’s, half of all 2009-10 revenues for firms listed on the S&P 500 also came from outside the US.

But it’s at the hiring end of things that reality truly bites. A startling analysis by the Economic Policy Institute (EPI) reveals an ugly truth about American-based companies: although 96% of them realized substantial profits in 2010, they added fewer than 1 million domestic jobs, while creating 1.4 million overseas — enough to have reduced the US unemployment rate by a full percentage point.

Not all of these lost jobs were in manufacturing, but a lot were. In the last 10 years, 40,000 factories closed across the US, and industrial-production jobs shrank from 17 million to 12 million. This one-third decline in employment coincided with a one-third increase in “productivity,” hailed by the business-oriented Heritage Foundation as a fair tradeoff. The rationale is that fewer workers mean lower costs, resulting in “more affordable” American products. But as many have observed, who in this country will buy those products in the absence of incomes and purchasing power?

In October, the Christian Science Monitor spelled out in detail the human toll of this twisted free-trade logic. Using Labor Department figures for trade-adjustment assistance, it calculated the number of US worker groups (assemblages of three or more employees) whose livelihoods have been lost due to increased imports or outsourcing — 9,017 since 2005, 2,875 of them in just the last two years.

The worst losses were in North Carolina, Michigan, Pennsylvania, California and Ohio, but the impact of what we persist in calling free trade has been felt nationwide. Separate data shows, for instance, that the state of Maine has lost 40% of its manufacturing base since the ratification of NAFTA in 1993. Today, the single biggest factor is China; according to the EPI, its 2001 entry into the WTO (with US sponsorship, no less) has precipitated the loss of 2.4 million American jobs over the past decade.

But enough frightening statistics. What is the answer to the jobs crisis going forward? Is there an answer? Yes, but not where the American political class, infatuated with simplistic, feel-good solutions, has been looking. Off the top, Republicans, and to some extent the administration, have offered the old standby, tax cuts.

But the US already ranks 24th out of the 28 OECD (Organization for Economic Cooperation and Development) countries in the taxes it pays, and none other than Moody’s Investment Service says tax-cutting is the least effective way to stimulate job creation — and that corporate tax cuts are the least effective of all. So, naturally, President Obama preempted Republicans at the State of the Union by proposing a corporate tax cut. Presumably, the wealthy, already in possession of their individual tax-cut extensions, will be prompted by their upcoming inflated dividend checks to insist the issuing corporations create more employment. We should live so long.

After tax cuts comes establishment bromide number two: enhanced education. Education is the magic cure-all not only for jobs (President Obama), but for such socioeconomic ills as wealth disparity (Fed Chairman Ben Bernanke). Everyone loves education. After all, it’s for the kids, it’s nonpartisan, and it avoids taking on entrenched economic interests. What’s not to like? Just this: it won’t solve the jobs crisis. We’ve been educating and retraining for years on end to no avail. Corporate America continues going abroad, where labor is the cheapest.

What, then, is the answer? Not further business deregulation, as our president, embracing his inner conservative, called for in a January Wall Street Journal op-ed. Such paeans to unleashing American “competitiveness” are empty rhetoric. Deregulating is what we’ve done since Reagan; it brought us the financial collapse.

What’s really needed is a coordinated program of federal initiatives — call it economic nationalism, not protectionism — that uses aggressive tax and tariff policies, investment and labor laws, and import-export regulations to directly inhibit outsourcing and offshoring by making US-based multinationals pay a price.

Why not, for example, penalize imports originating from American foreign subsidiaries, which are practicing not international trade, but a form of corporate cost shifting. Now that would be following the money to its true source.

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy.

From The Progressive Populist, March 15, 2011