When corporations are rotten citizens
Corporations often like to promote PR about being great citizens. But hidden in this news item is an example of bad corporate citizenship, as well as stupidity:
Strong second-quarter earnings from McDonald's, General Electric and Caterpillar on Friday are just the latest proof that booming profits have allowed Corporate America to leave the Great Recession far behind.
But millions of ordinary Americans are stranded in a labor market that looks like it's still in recession. Unemployment is stuck at 9.2 percent, two years into what economists call a recovery. Job growth has been slow and wages stagnant.
"I've never seen labor markets this weak in 35 years of research," says Andrew Sum, director of the Center for Labor Market Studies at Northeastern University.
Wages and salaries accounted for just 1 percent of economic growth in the first 18 months after economists declared that the recession had ended in June 2009, according to Sum and other Northeastern researchers.
In the same period after the 2001 recession, wages and salaries accounted for 15 percent. They were 50 percent after the 1991-92 recession and 25 percent after the 1981-82 recession.
Corporate profits, by contrast, accounted for an unprecedented 88 percent of economic growth during those first 18 months. That's compared with 53 percent after the 2001 recession, nothing after the 1991-92 recession and 28 percent after the 1981-82 recession.
What's behind the disconnect between strong corporate profits and a weak labor market? Several factors:
• U.S. corporations are expanding overseas, not so much at home. McDonald's and Caterpillar said overseas sales growth outperformed the U.S. in the April-June quarter. U.S.-based multinational companies have been focused overseas for years: In the 2000s, they added 2.4 million jobs in foreign countries and cut 2.9 million jobs in the United States, according to the Commerce Department.
• Back in the U.S., companies are squeezing more productivity out of staffs thinned out by layoffs during Great Recession. They don't need to hire. And they don't need to be generous with pay raises; they know their employees have nowhere else to go.
• Companies remain reluctant to spend the $1.9 trillion in cash they've accumulated, especially in the United States. They're unconvinced that consumers are ready to spend again with the vigor they showed before the recession, and they are worried about uncertainty in U.S. government policies.
"Lack of clarity on a U.S. deficit-reduction plan, trade policy, regulation, much needed tax reform and the absence of a long-term plan to improve the country's deteriorating infrastructure do not create an environment that provides our customers with the confidence to invest," Caterpillar CEO Doug Oberhelman said.
Caterpillar said second-quarter earnings shot up 44 percent to $1.02 billion — though that still disappointed Wall Street. General Electric's second-quarter earnings were up 21 percent to $3.76 billion. And McDonald's quarterly earnings increased 15 percent to $1.4 billion.
Still, the U.S. economy is missing the engines that usually drive it out of a recession.
Carl Van Horn, director of the Center for Workforce Development at Rutgers University, says the housing market would normally revive in the early stages of an economic recovery, driving demand for building materials, construction workers and appliances. But that isn't happening this time.
And policymakers in Washington, D.C., have chosen to focus on cutting federal spending to reduce huge federal deficits instead of spending money on programs to create jobs: "If we want the recovery to strengthen, we can't be doing that," says Chad Stone, chief economist at the Center on Budget and Policy Priorities.
For now, corporations aren't eager to hire or hand out decent raises until they see consumers spending again. And consumers, still paying down the debts they ran up before the recession, can't spend freely until they're comfortable with their paychecks and secure in their jobs.
Said Van Horn: "I don't think there's an easy way out."
Even as flawed a human being and businessman as Henry Ford understood one fact that these corporations as a group have forgotten about our consumer society: workers are also consumers. Ford paid his workers an unheard of $5 a day starting in 1914 with the understanding that it would help retain his skilled workers and that it would also enable them to buy his own products, which at that time were beyond the reach of many working people.
Corporations say they are reluctant to hire while the Consumer Confidence indices show that Americans are still fearful about their economic security, and a large part of that has to do with the weakness in the job market and lack of any sort of trust between worker and management that jobs and work conditions will be secure.
Corporations are sitting on nearly 2 TRILLION dollars in cash and yet still claim that they can't afford to hire here in the US. If consumers aren't buying, how are corporations getting that cash? Through speculation in stock prices and through firing workers. This will lead to short-term profits.
But since the economy is based on consumption, and corporations have forgotten that workers are also consumers, eventually all the cost-cutting measures in the world won't make up for a lack of sales. It will be up to the corporations to break this cycle and commit to hiring American workers in order to improve their bottom line for the long term, and they've got 2 trillion dollars worth of cushion to allow them to find the testicular fortitude to do it.
Corporations got by with this counterproductive kind of personnel policy in the past due to the overuse of credit in place of wages in Americans' relentless pursuit of consumption. But credit also dried up in the Great Recession That Hasn't Ended In Any Way That is Meaningful. Real estate is still moribund due to the reset of credit policy, and some of that was long overdue. But those foreign workers corporate America is hiring in place of Americans aren't at the point in their standard of living where they can consume anywhere as prolifically as Americans can.
Now unemployed people don't pay income tax. Meanwhile, corporations who fire people get rewarded for their economic and political misbehavior. And yet many of our politicians insist on handing out tax cuts and rebates and incentives to these same corporations.
For forty years many Americans have been persuaded that taxes are legalized theft against them personally, and some sort of oath was taken by conservative pols to never say the word "taxes" unless the pejorative adjective "job-killing" was appended beforehand. The implication, then and now, according to Speaker Boehner, is that decreased taxes therefore must CREATE jobs, right?
Well, where are they? I could wait while you go turn over some rocks looking for them, but we've already discussed the reality in the article quoted at the start of this post. Cutting taxes, a lodestar of modern Republican economic policy, has not provided security for American workers nor created new jobs to support a robust middle class. All it has done is allow corporations and corporate executives to sit on obscene amounts of wealth, and income disparity, which also robs our society of stability as well as justice, has become worse now than it has been at any time since the 1920s. I hope we all remember what happened after the 1920s.
We could wait for corporations to wake up to the box into which they have painted themselves. But we could also give corporations a nudge by not allowing them to legally move profits to their overseas components, and we should raise taxes on corporations that cut jobs. Taxes, besides paying for civilization and roads and schools and other great goods, have also been used historically to encourage good behavior and penalize bad behavior as a secondary purpose.
Retaining the status quo is not an option, especially as we face the reality of our impending budgetary crisis. For too long we have encouraged corporations to be bad citizens as we have showered them with the benefits and privilege of operating within our great country. It is time to understand that they will not be good nor do good on their own, since they operate from a competitive paradigm that necessitates that far more people LOSE economically than win.