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Rise in profits, more hiring? Not exactly
Robert Reich
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TEXT OF COMMENTARY
Kai Ryssdal: The losses on Wall Street today might have been the exception that proves the rule, but the rally traders have been enjoying the past couple of weeks has been driven largely by corporate profits. Companies making more money is in theory good for everyone. Investors benefit through higher share prices. Broader society benefits, because industry takes those profits and hires more people to make and sell more stuff.
Commentator and former Clinton Administration labor secretary Robert Reich says that last part would be great -- if it was happening.
Robert Reich: It used to be the case that when the profits of large American corporations rose, so did their hiring. Not this time. For one thing, many of their profits are coming from overseas. So that's where they're investing and expanding production.
GM now sells more cars in China than it does in the United States. But most of those autos are manufactured in China, where GM has 32,000 hourly workers. That compares to the U.S. where only 52,000 hourly workers remain, down from 468,000 in 1970.
American taxpayers bought GM to save GM jobs, remember? Well, GM officials say no American taxpayer money is being used to expand in China, but money is fungible. GM can use the dollars it doesn't have to spend in the United States meeting its American payrolls and repaying its creditors, for new investments in China.
Second, big U.S. businesses are investing their cash in labor-saving technologies. This boosts their productivity, but not their payrolls. Last Friday, for example, Ford reported a $2.6 billion second-quarter profit. The firm is already more than two-thirds the way to equaling its record 1999 profits. But due to labor-saving technologies, Ford now has half as many employees as it did a decade ago. Wall Street analysts are happy with Ford's commitment not to expand capacity. In fact, according to the Wall Street Journal, the Street is advising investors to sell the stocks of companies that talk openly of expanding capacity.
Finally, corporations are using their pile of money to pay dividends to their shareholders and buy back their own stock -- thereby pushing up share prices. On Friday, GE announced it would raise its dividend by 20 percent and reinstate its share-buyback plan.
We're witnessing a great decoupling of corporate profits from jobs. Big American companies won't begin to think about hiring until they know American consumers will buy their products. The problem is, American consumers won't start buying against until they know they have reliable paychecks.
Kai Ryssdal: Robert Reich teaches public policy at the University of California Berkeley. Next week in this space, commentator David Frum. Take a minute to send along your thoughts. Our website is Marketplace.org. Click on the link that says "Contact".
More importantly, what no one seems to want to discuss is that huge corporations that could hire hundreds of thousands employees are Republican based. They want the Republicans to win the upcoming election, and they know that the joblessness and the yelling about joblessness is good for the Republican rhetoric. So, why help the President and the Democrats by cutting down the joblessness? They will not move until after the election, hoping that then the Republicans will win, and that they can then take the credit for the reduction of joblessness. In addition, they're spending hundreds of millions of dollars of their profit to finance Republican campaign ads. Until there is campaign reform in this country, there is no hope for Americans and democracy in America.
The Fed can print money and the Obama Administration can apply stimulus spending but it won't revive consumer spending and private sector hiring in a sustainable way. It's all about the demographics. With the Baby Boomers retiring we face a 20 year slow motion economic train wreck. Our effective tax rate will rise 50% by 2030.
A question for the economists and finance students:
Back when I took Econ 101 (in the mid-60's) the concept of exporting jobs was to move the lower-paid, labor-intensive work to regions that paid lower wages. The textbooks used textiles as an example. While this resulted in the loss of US jobs in those industries, the theory was that the industrial plant would be re-purposed to make higher-value goods (like autos) and offer workers new, better-paid jobs than the ones they had.
Almost fifty years later, how is that working out for us? Seems that we have globalized a large part of our industrial base (& workforce) out of business. Perhaps instead of "free trade" we should aim for "balanced trade" where American economic self-interest is no longer equated with the ability to shift production to the cheapest labor markets in the world just to raise corporate profit levels.
Henry Ford had a good idea for marketing the Model T - American companies should make products in America that their workers want to own & can afford to buy.
This just goes to show that the theories behind capitalism, just like the theories behind communism, do not necessarily pan out in reality the way they are sold to the public, i.e. higher profits for companies will create more jobs and be better for everyone.
It's very sad to live in a society that actually believes these kind of absolute systems work.
As a finance doctoral student, I tend to disagree with most of what Professor Reich has to say, though I suspect job generation will be slow and all employers will demand higher productivity from their workers. Prof. Reich leans toward Keynesian theories which have shown themselves to be a failure. All we have to do is look across the Atlantic for that.
I suspect the US has entered an economic situation which will be a generational shift. Reasonable amounts of debt will likely be the order of the day as we move forward. Many Americans will have to work instead of waiting around for government checks (and I suspect many of these will be pensioners from cities, counties, and states who are currently planning on making more in retirement than they made in their working careers).
The "Great Recession" told us a lot of things. It showed that us consumers can't long spend 106% of our income (as in 2007); it forced companies to utilize the productivity gain potential of modern IT, and it arguably is showing us that the US economy is a global one, not a national one. Now Prof. Reich shows the uncoupling of the more profits = more jobs link.
Maybe we don't need all those people to provide the goods & services we want/need. For a while, we could purchase those goods from the Pacific Rim. Or, those companies could work on making their products just a bit better, so us consumers will be willing to pay extra to get them. That's going to take work & thinking, which is hard to get into crowd rousing slogans. If those companies want to do it.
Most companies are waiting for the american consumer to start purchasing again. The economy is in somewhat of a deadlock over that. But to kick the process off, what's going to happen is a pickup in business to business contracts, not consumer spending. We just saw Fed-Ex report profits, and Microsoft just reported a record quarter. So business spending is on the rise. As more businesses see the need to invest to get ahead, the economy will get out of its deadlock.
The Republicans and Fox News have been pounding the rhetoric out about how Obama is failing to create jobs. And the only thing that the Republicans can promise to spur job creation is cutting taxes on businesses so they can invest in more jobs. But Republicans call people who talk about creating American jobs Protectionist Freaks. And they call people who complain about preferential hiring for H1B degrees over Americans with degrees, Xenophobes. Now Robert Reich explains why and Jim jumps on him for being Comrade Prof. Reich. It all goes to show, that the Republicans have nothing to offer to create jobs for Americans, and more importantly, are completely against creating jobs for Americans.
So where does this leave us in November election day? With a choice between the well meaning but misguided, or greedy and corrupt who love only their country's money and power, but not God, their country and their countries families.
I'm so sorry that Comrade Prof. Reich is so upset. Might I suggest that Capitalism is about the synthesis of "Risk verse Reward", as very socialism is more concerned with "equalization".
Maybe it is more complicated to hire employees than it is to buy/lease capital equipment? The problem is the "matriculation of the workforce", rather than providing an allowance as a substitute for wages; i.e., plan for unemployment.
