For a large part of the 20th century, the fate and fortune of America's big business and its "average citizens" were intertwined. In the 21st century, however, they are almost completely disconnected.
[In this blog series, we examine that disconnection. In this first blog, we identify and discuss reasons for the disconnection. In our second blog, we propose a solution to reconnect America's big business and its "average citizens.]
Among the primary reasons for this disconnection are major corporations:
- offshoring millions of what were good paying American jobs through a process euphemistically called "globalization."
- reducing the size of their incumbent workforce significantly through means such as organizational streamlining, downsizing, lay-offs, staff reductions, and plant closings.
- restructuring the nature of jobs from full time employment into temporary and contract employment.
Let's look at offshoring first. A 2015 A.T. Kearney study disclosed that in spite of attempts to reverse this trend in recent years, it continues at a steady pace with "offshore manufactured good imports poised to grow by 6.5 percent in 2015, nearly matching the 6.9 percent growth rate from 2014."
David Autor of the Massachusetts Institute of Technology along with other academic colleagues has documented the negative consequences that offshore imports have both on the pocketbooks and the psyche of American workers.
In 2014, Autor et. al., issued a paper which showed that the entry of China into the World Trade Organization trade deals after 2001 "significantly suppressed overall U.S. job growth" with an estimate of "net job losses of 2.0 to 2.4. million (in the U.S.) stemming from the rise in import competition from China over the period from 1999 to 2011."
Autor et. al., have just released a new paper which discloses that where these jobs are lost matters in terms of polarizing workers' ideologies and votes in elections. They report, "Trade exposed districts initially in Republican hands become substantially more likely to elect a conservative Republican, while trade exposed districts in Democratic hands become more likely to elect a liberal Democrat or a conservative Republican."
In summary, off-shoring has economic, psychological and political consequences. So too do workforce reductions - no matter what their nature.
At the end of last year and in the first quarter of this year, big businesses of all types such as John Deere, Caterpillar, Boeing, Intel and 21st Century Fox have announced substantial workforce reductions.
These reductions are not a current or 21st century phenomena. There has been a steady and almost continuous stream of organizational restructuring and downsizing by big businesses dating back to the 1980's and '90's.
These cuts were not just by troubled companies. In many instances, they were done "by healthy companies hoping to reduce costs and boost earnings by reducing head count." Various studies have shown that for many companies the cuts did not produce the desired results nor eliminate the need for further downsizing.
Nonetheless, in 2016, captains of industry still engage in workforce reduction as a primary practice for increasing profitability and productivity. The other practice that has become more much more prevalent for them over the past decade has been converting the permanent workforce to a temporary and contracted one.
In a New York Times article, Neil Irwin reports that "...the number of Americans using alternative work arrangements rose 9.4 million from 2005 to 2015. That was greater than the rise in overall employment, meaning there was a small net decline in the number of workers with conventional jobs."
The economic and human cost of this transition in the nature of employment is enormous. It eliminates benefits and transfers the full cost for providing social insurance from the employer to the part-time, lower-wage employee. (For an excellent analysis and discussion of this, read Steven Hills "Benefits for the Rest of Us" in Washington Monthly.)
Offshoring, workforce reductions, and job restructuring: That's three strikes. Big business should be called out.
Wait! You ain't seen nothing yet. Let's take a quick look at three more reasons for the disconnection between American big business and working class Americans: corporate welfare, corporate CEO compensation, and corporate inversions.
Corporate welfare occurs when large businesses have rigged the system so it rewards their businesses disproportionately. In a recent opinion piece for the New York Times, Nicholas Kristoff states, "One academic study found that tax dodging by major corporations cost the U.S. Treasury up to $111 billion per year." Drawing on a new study by Oxfam America, Kristoff further notes that "...each $1 the biggest companies spent on lobbying was associated with $130 in tax breaks and more than $4,000 in federal loans, loan guarantees and bailouts."
That's not a bad return on investment. An even better one is what corporate CEOs pay themselves for the time they spend on the job.
We addressed that topic in our Huffington Post blog published in April of last year titled, "Profits Without Honor: The Sad Truth About CEO Compensation" so we won't go into detail here. Let us just highlight a few factoids: In 2012, the 500 highest paid executives in U.S. public companies received an average $30.3 million each. In 2012, the ratio between the average pay of American CEOs to the average pay of American workers was 354:1. In Germany, the executive to worker ratio was 147:1 and in Japan it was 67:1.
Given this pay differential, we are certain that the U.S. CEO's would not want to trade places with their foreign counterparts. Several of them, however, have tried and some have succeeded in using the corporate inversion ploy of merging their business with a foreign business and moving their corporate headquarters to the country in which that business is located so that it would be subject to lower corporate tax rates there.
A study by the Congressional Research Service in 2014 disclosed that since 1983, 75 U.S. corporations have moved their tax domiciles outside the U.S. to avoid paying U.S. taxes and 47 have done an inversion within the past decade. At the beginning of April, the Obama administration introduced new tax rules which make doing inversions tougher.
Those rules caused Pfizer Inc and Allergan PLC (Ireland) to terminate their merger discussions. Other companies, however, such as Johnson Controls and Coca Cola Enterprises are continuing with their pending merger discussions.
To sum it up, there are practices in which many American big businesses engage that harm the American economy and its workers. That's not to say that they all act this way.
But, unfortunately, a number of them do. As a result, the conclusion must be that while all "American" big business is present not all big business is accounted for.