Globalization, the economy and jobs--The Economist spills the beans about our illusion

Wednesday, March 01, 2006 at 04:05 PM

As noted here many, many times before, our feckless leaders simply refuse to admit the truth about what's happening to American jobs and to the finances of the nation.  The policy is to define "the economy" as corporate profits and stock prices, while distracting attention from the sorry state of workers by:

Harping on spurious unemployment statistics

Breathless reports of "new jobs"

Baldly claiming that those nasty old tax cuts are working 24-7 to create even more jobs

They keep this charade up despite the publicly available grim figures on what's been happening to American jobs, including exactly how many have been lost and how wages have been affected.

And there's no excuse for the administration, no defensible claim that they really don't know what's going on.  As of this afternoon, the White Houses's web page devoted to the economy still contained the following headlines:

  1. The Economy Is Strong And Continues To Grow

  2. The President's Agenda To Strengthen A Vibrant Economy--President Bush's Agenda Will Ensure Continued Opportunity For America's Workers And Entrepreneurs

Yet this week's issue of The Economist, the mouthpiece of capitalism and global free trade, offered up several dollops of truth in an article titled Decoupled.  Excerpts:

....In other words, the old relationship between corporate and national prosperity has broken down....First...companies are no longer tied to the economic conditions and policies of the countries in which they are listed....

In the past two years, the earnings per share of big listed companies have climbed by over 100% in Germany, 50% in France, 70% in Japan and 35% in America.  No wonder Europe's and Japan's stock markets have outpaced those in America, despite the latter's faster GDP growth.

Second and more worrying, the success of companies no longer guarantees the prosperity of domestic economies or, more particularly, of domestic workers.  Fatter profits are supposed to encourage firms to invest more, to offer higher wages, and to hire more workers.  Yet even though profit's share of national income in the G7 economies is close to an all-time high, corporate investment has been unusually weak in recent years.  Companies have been reluctant to increase hiring or wages by as much as in previous recoveries.  In America, a bigger slice of the increase in national income has gone to profits than in any recovery since 1945.

Home truths
The main reason why the health of companies and economies has become detached is that big firms have become more international.  The world's 40 biggest multinationals now employ, on average, 55% of their workforces in foreign countries and earn 59% of their revenues abroad.
Foreign sales of America's...50 biggest firms [in the S&P 500] 40% [of the total].  The old saying "What's good for General Motors is good for America," no longer rings true: over one third of GM's employees work outside the group's home country.

If a large part of the spurt in profits comes from foreign operations, it is less likely to to be used to finance investment or extra job creation at home...companies are likely to plough their extra profit into further investment abroad.   Alternatively, they may buy back shares or repay debt.

Globalisation has also shifted the balance of power in the labour market in favour of companies.   It gives firms access to cheap labour abroad; and  the threat that they will shift more production offshore helps keep the lid on wages at home....

Workers can still gain from rising profits if they own shares, either directly or through pension funds....

If profits (and hence executive pay) continue on their merry way, while ordinary employees' real wages stand still and their health benefits and pensions are eroded, workers might well expect their government to do something to close the gap.  It's not hard to think of ideas that would be popular--higher taxes on profits, restrictions on overseas investment, import barriers, or making it harder to lay off workers.  The trouble is, in a globalised economy, such measures would be suicidal.  Firms would simply move operations' head offices to friendlier countries.

A more promising way of allowing workers to share in companies' prosperity is to encourage firms to introduce profit-sharing schemes for employees.  But perhaps the most useful thing that governments can do is to ensure that consumers (ie workers) benefit from lower prices as a result of the shifting of production to low-cost countries....

Now, the article's rife with massive internal contradictions:

--why would employers who have suddenly gained the upper hand on wages suddenly volunteer profit sharing?

--how effective can it be to ensure that consumers benefit from lower prices, when an increasing number of consumers have no jobs?

But, it definitely admits--without any equivocation--that:

--Higher corporate profits no longer translate into more jobs or higher wages in the home country

--Wages are being depressed domestically by the threat of more offshoring

--Offshoring has affected a bunch of jobs, as shown by the large percentage of the corporate work force that is outside the home country

--Neither GDP nor corporate share prices/profits have anything to do with the health of the overall national economy.

Is there any chance that the Bush administration doesn't know this?  None.  By the time you get an admission, in print, in The Economist, every economist worth a spitball to the head has figured it out.

They're lying, distorting, deliberately deceiving.  Their playing the old "watch my hands while my foot gives you one swift kick in the ass" game perfected by "illusionists."

And in the final analysis, that's what the whole damn bunch of them are: illusionists.  Their skill is not ensuring a healthy economy, but creating the illusion of a healthy economy.  Their job is not to ensure prosperity for the people, but to create the illusion that they are attempting to create prosperity for the people.

They create not jobs, but semantic traps to further the illusions.  They use a definition of "the economy" that is meaningless to most, they use definitions of "jobs" and "employment" and "unemployment" that are meaningless to most, and they use definitions of "we" and "America" that exclude most of the people to whom they speak when they use those definitions.

And The Economist rather clearly tells you why: "If profits (and hence executive pay) continue on their merry way, while ordinary employees' real wages stand still and their health benefits and pensions are eroded, workers might well expect their government to do something to close the gap."

If, on the other hand, you don't understand that this is the situation, workers (increasingly ex-workers) won't have those nasty expectations, and the government (defined as THEM) can go right on scooping millions upon millions from your pile to theirs, all the while spouting nonsense about unity and compassion.

ps: How interested are your elected officials in watching out for you?  Try this one on:  they've passed a bill that is headed for Bush's desk which--I swear--limit the deduction taxpayers can claim for donated clothing.  Purportedly designed to help close the nation's "tax gap," the provision is buried in the tax cut package.  How's that for an illusion?