Talk is cheap, Jobs lost not
A proven blueprint to multiply specialized goods production, reverse our factory jobs bleed, and advance employment.
(Note: underlined words/phrases correspond to links.)
The following is a continuation of the reasoning & rationale for the Bill-Request begun at Main Street Gov, summarized here.
Published 2015
There is a tendency to blame labor practices etc in China and other emerging markets for America’s manufacturing job losses. While many American jobs will naturally succumb to international wage-arbitrage, there is much more to the jobs-bleed than unfair trade practices.
Regarding Free Trade, it has its pro’s (if done right) and con’s (if done wrong).
A cheaper Mexican or Chinese import provides the American consumer with a cheaper alternative, leaving more discretionary income in his or her hands to spend on hopefully an American-made product, for whose manufacture America has a distinct advantage over all other international competitors.
But Free Trade done wrong is a colossal jobs destroyer. Needless to say, the Clinton, Bush, and Obama administrations have done free trade ALL WRONG, or are in the midst of doing free trade ALL WRONG.
Why? Well, just notice who the authors and architects are for every Free Trade agreement in place or in process. For sure, it will take neither telescope nor magnifying glass to see that they are all, in one way or the other, associated with some fiefdom of high finance. The manufacture of goods for trade, and trade itself, takes financing, and who gets to do that financing, and on what terms, has much to do with who’s doing the lion’s share of importing, especially when it’s the U.S. doing the importing and a second or third world economy doing the exporting.
Take Citigroup, for example. Few made it off as big as Citi did with Bill Clinton’s Jan 1 1994 introduction of NAFTA. Moreover, after the Dec 1994 currency crisis in Mexico, a bailout of Citi’s soured investments in Mexico got packaged and presented to the American taxpayer as a “bailout of Mexico.”
The danger to free trade: if the country entering a free trade agreement has a tremendous labor cost disadvantage to another entrant, the labor cost disadvantaged country must be ready in advance — i.e. before the agreement is struck and signed — to fill the labor cost disadvantage with a set of alternate advantages, that are overwhelming in magnitude, or else there’ll be a giant sucking sound as jobs go out the border, en masse.
To know what overwhelming advantages there need to be, one must first understand what Free Trade means to many an American multinational. At its basest, it is a blunt opportunity for layoffs and the export of American jobs to maximize shareholder profits, buyback shares, augment earnings per share, run up the stock price, ramp up executive compensation, and fatten bonuses to (if at all possible) gluttonous levels.
In numerous instances of a case study we conducted, where we looked into several imported products originating from low wage labor countries that U.S. multinationals had moved jobs to, to build those products, it was our finding that the export of American jobs did NOT bring U.S. consumer costs down, as much as it could have. In some instances, the differential was very substantial.
After we crunched out the numbers, we were left with little doubt that so-called “Free Trade” had taken the ratio of the CEO’s corner office pay — and, in fact, all executive c-suite pay — in relation to that of the average worker, to an even more stratospheric level than it already was before the jobs export.
There was a time, not so long ago, when a big CEO made 20-to-40 times what the average worker made. No more. Nosebleed multiples of 200 times, 300 times, and even 400 times, seem to have become the norm.
Again, it leaves us with little doubt that what was supposed to have been unmitigated cost savings to the U.S. consumer, appears to have been redirected towards fattening the wallets of our corporate chieftains instead.
But that’s to put a mildly positive spin on it. Take out the spin, and you get to see the other victim — a father or mother, a brother or sister, a spouse who lost a job.
Thus, to compensate for the inevitable gluttony that accompanies free trade, Government must prepare to present and provide domestic manufacturing SME’s (small and medium enterprises, businesses with less than ~500 employees) and domestic upstarts (new enterprises, NE’s) with a host of federal favors — tax and regulatory favors, skills training favors, and access to deep pockets of credit at low interest rates, alongside a cornucopia of support services — marketing, accounting, and “back-office” among them — at the local/community level, in a manner that is federally backed.
The tax favor must be particularly overwhelming. You most certainly cannot have an SME, proudly producing “Made in the USA” product 100% of the time, paying full-boat corporate tax rates, while General Electric gets to pay near nothing rates because:
(1) it had the benefit of having GE Capital bailed out on Wall Street in 2008
(2) it’s got a 1200-plus accountants in its tax department, and former Treasury officials with firsthand knowledge on how to dodge taxes down to a trickle, overseeing it, and
(3) it’s got places like the Cayman Islands to fool around with
Absent the federal favors to manufacturing SME’s and NE’s here at home, here’s what happened: In the first ten years of the new millennium, America produced about 15 factory closings per day. In the same period, America lost about 50,000 factory jobs per month. After the Financial Crisis in 2008, the Great Recession that ensued, and into the so-called “Recovery”, the human casualties grew worse. In 2010 alone, 20-some manufacturing facilities got shut down every day.
That said, let’s rewind in time…
On Jan 1 1994, the Clinton Administration celebrated the passage of NAFTA. In the year before NAFTA, the U.S. had a trade surplus with Mexico. After NAFTA, that all changed. By 1995, the U.S. had a near $16 billion deficit with Mexico. By the end of the Clinton presidency, the deficit reached near $25 billion. By 2007, it’d reached near $75 billion. In 2012, four years after the financial crisis and two years into the “recovery” America’s annual trade deficit with Mexico remained north of $60 billion. The American jobs lost to the our government’s failure to prepare vis-a-vis Mexico: countless.
On Nov 11 2001, pursuant to a U.S. led go-ahead, China got the votes to enter the World Trade Organization, with the Bush Administration completing a process that the Clinton Administration took to near completion. In the first year of the Clinton Administration, America’s trade deficit with China was as little as $22 billion. In the year before China’s entry into the WTO, the trade deficit was $83 billion. The trend line in China’s favor, even without the benefit of WTO membership, was obvious. By 2012, America’s trade deficit with China had mushroomed to $315 billion. By 2015, it’s reached almost $366 billion — about a billion per day, counting the days of a leap year. The American jobs lost to our government’s failure to prepare vis-a-vis China: countless SQUARED.
Irrespective of the many millions of jobs lost to a governmental failure to prepare for free trade against a trade superpower like China, Wall Street did do extraordinarily well in the aftermath, with the financialization of trade that follows in lock-step alongside free trade pacts. An escalation in trade was, in short, extremely net-positive to Wall Street, despite the American manufacturing jobs hemorrhage that followed in lock-step, too.
“[China’s] participation in the WTO will be a boost for us and them,” said U.S. Trade Representative Robert Zoellick to the plenary session of the WTO, just prior to the vote to admit China. Mr. Zoellick, a former Executive VP of Fannie Mae from 1993 to 1997, and an adviser to Enron in 1999, would go onto become a Vice-Chairman of Goldman Sachs International. By “boost to us” we now know what Trade Rep Bob meant.
Between 2000 and 2010, fully one-half of the manufacturing jobs in the state of Michigan were lost, while Wall Street ballooned, blew up, got bailed out, and (courtesy of our government) got to balloon again so that it blows up again, and gets bailed out again, up ahead.
50 years ago, the city of Detroit boasted the highest per capita income in the nation. Now, that distinction belongs to the counties surrounding the lobbyists on K Street and the residential zones of bankers on Wall Street.
50 years ago, a quarter of a million people worked manufacturing in Detroit alone. Now, with manufacturing employment down 90%, Detroit is bankrupt, half its population age 16-and-over have no work, and 3 out of every 5 of its children live relegated to poverty, or abject poverty.
Japan, like Germany, is renowned for its manufacturing prowess, albeit less than in decades past. (Japan’s central bank policies and political failures are owed much blame for the loss of luster.) China has its own formidable manufacturing outlets, for America to contend and compete with. Yet, from sea to shining sea, we have the labor, the land, the raw materials, and the know-how to put Germany, Japan, and China to envy.
Saving a focus on China for another day, as many problems as Germany and Japan’s got (and they’ll have plenty more including the insurmountable ones up ahead, with ECB and BOJ follies certain to demand their payday), Germany in particular can teach us a thing or two. In Feb 2012, the Organization for Economic Cooperation and Development, for the world’s developed economies, issued its “Economic Survey of Germany” and concluded that the next challenge for German industry would be to find enough German people to employ, and suggested the recruitment of German women to fill the gap. If only America could have this problem. More on that later.
Continuing on with the seemingly disconnected set-pieces that’ll begin to connect as we scroll on down…
In 2002, Chancellor Gerhard Schröder of Germany’s Social Democratic Party appointed Volkswagen’s personnel chief Peter Hartz to head a “Jobs Council” — no, it was nothing like the one President Barack Obama set up in 2011, appointing the American job-exporting CEO of GE, Jeffrey Immelt, to head it up.
From a job-creating perspective, the Hartz Commission was a roaring success. Chancellor Schroder’s political opponent and successor from the Christian Democratic Party, Angela Merkel, continued the policy prescriptions Peter Hartz advocated, because they were that successful at combating unemployment.
As for Mr. Obama’s super-duper Jobs Council, it was quietly disbanded not long after its initiation, but not soon enough, given that it was stuffed to its gills with Obama campaign megadonors and megabundlers, as well as America’s most prolific (and highest paid) job exporters.
At one point in the US housing bubble, the homeownership rate reached sixty-nine percent. In Germany, the rate is around fifty. German banks required large down-payments to buy homes, as high as 30%. Thus, Germans largely escaped a housing bubble.
On the flip side, across the Atlantic and going on two decades now, the push in the US was for 3% down, if that. And our government is still at it, encouraging it on. Ask the Federal Housing Administration.
Since Clinton got the ball rolling, the US Establishment has focused hard on real estate. And, in the end, what did we get for that? — a transient hyper-illusion that enriched brokers and bankers, and the politicians they had on payroll, hurting just about everyone else.
By focusing its resources at manufacturing instead of finance and real estate, Germany directed its energies and faculties at building something real and tangible, and as a result — in the years 2009 thru 2011 when America was shedding good jobs, in return for bad jobs — Germany’s enjoyed one of the lowest unemployment rates in decades, with its base of good (i.e. high-paying) jobs flourishing.
In that respect, Wolfgang Schäuble has a thing or two to teach Timothy Geithner — the man that President Obama put in charge of the US Treasury to oversee the start of the “Recovery”. While Geithner thought currency manipulation was the way to fix global ‘imbalances’ and ‘balance-out’ deficit producers alongside surplus producers, the German Finance Minister via Der Spiegel told his American counterpart a simple fact, that:
“The German export successes are not the result of some sort of currency manipulation, but of the increased competitiveness of companies. The American growth model, on the other hand, is in a deep crisis. The United States lived on borrowed money for too long, inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies.”
But did Timothy listen? Of course, not. He’d been inflating the financial sector and neglecting small and mid-sized industrials since the day his brain had fully formed, and been hand-delivered to his high-finance directors.
Too many seem to forget that Geithner was an integral part of the Clinton era financial sector coddle, the Bush era financial sector inflation, and the Obama era financial sector reflation, and that he was there, in the very front row, to watch Citigroup getting bailed out multiple times.
As of recent, the top 1 percent of German households earn about 11 percent of all income, near unchanged from 1970.
In 1970, the top 1 percent of US households earned about 9 percent of all income. As of recent, the top US 1 percent earn about 23% of all income. And guess where a lot of that income is concentrated … yes, by now, we’re sure you guessed it.
Go back a couple of decades, and you will find the dramatic shift in American income distribution eerily corresponded to the dramatic decline in American manufacturing.
And if you’d like to see American history in the mirror… In 1928, just before the Great Depression got underway, the top 1% in America earned nearly a quarter of national income. During the next half-century, earnings of the wealthiest 1% in America sank to under 10% of national income. Then the trend re-reversed and, by 2007, the richest 1% in America again controlled nearly a quarter of the nation’s income.
Small and medium sized businesses are the fundament to the vaunted German export juggernaut. And, in recognition of that, Germany has numerous state-owned banks, or Landesbanken, and thousands of municipally-owned banks, or Sparkassen, to serve its SME sector, or Mittelstand, with for example low interest loans at rates that private banks could not match.
Germany’s public banking system has made access to capital a staple for German SMEs, enabling small and medium German firms to pay their employees better than big firms do here.
15,600 branches of the municipal Sparkassen, with nearly a quarter of a million employees (the last we looked), have reached into the smallest of enclaves, allowing good sound business ideas — in small places — to seed, bloom, and blossom.
The U.S. Small Business Administration (SBA.Gov) claims it wants to “help Americans start, build and grow businesses.”
Yet in 2014, OpentheBooks.com, a watchdog monitoring waste and misuse of federal funds, would uncover a series of improprieties in the loan activity of the Small Business Administration, and in its $100-billion-plus loan portfolio. (The SBA has been accused of potential fraud by an inspector general before.)
A think tank once found the programs of the SBA to be “a form of corporate welfare for some of America’s largest banks.” Why, because the largest banks were enjoying the spoils of the SBA’s loan guarantees, while suffering none of the losses, which of course got redirected to the one place bankers love to redirect their losses to: taxpayers.
$9 billion in funds destined for alleged small business advancement had found conduit through “venture capital, capital partner firms, mezzanine finance firms and private investment funds,” according to the watchdog.
Moreover, an audit by the Government Accountability Office would find more than 60% of leading small business contractors to be anything but small. Not only were the small contractors actually big ones, but the GAO also found more than 70% of the SBA’s small business contracts going to big businesses.
OpenTheBooks also found nearly $100 million in financing going to exclusive beauty spas, and nearly $200 million lent to exclusive country clubs, yacht clubs, jewelers, luxury watch dealers, and even Lamborghini dealers.
It’s an undisputed fact that we got a bunch of Too Big To Fail banks, playing the casino with capital leveraged to the hilt, enjoying an implicit government-sanctioned taxpayer guarantee. Action is needed. Action that (among other things) entails a federal partnership with America’s nearly 7000 independent community banks, a public-private “Special Relationship” extending from her heartland to all her far corners.
We need a new joint venture of resources at our local banks, with the full faith and credit of the federal government behind them, to raise our small and medium businesses and cultivate new ones.
We need a new joint venture of services at our local banks in the US, to offer not just financial advice, but networking and consulting, to our small and medium enterprises and the entrepreneurs who drive them.
We need a new cross-breed of assets at our local banks, to sponsor hometown growth, to invest in America’s bottom-up economy, if you will.
The Federal Reserve’s Zero Interest Rate Policy has encouraged factory floor automation — low interest borrowing and spending on robots that have replaced workers on assembly lines and, as much as possible, everywhere else in the manufacturing lineup. The Fed’s ZIRP is a net job killer. Which is all the more reason for urgency on this front.
Do you think federal and state Tax Policy for manufacturers, federal and state Regulatory Policy for manufacturers, Research & Development Policy, Education Policy, Immigration Policy, Energy Policy, and a weak dollar policy that the feds have the audacity to call a strong dollar policy, encourage investment here, to hire here and manufacture here? Japan will have a crisis in its currency up ahead, with the Bank Of Japan to blame, but over twenty-some years leading into 2011, the US Dollar had devalued 70-some per cent against the Japanese Yen — and what exactly did that do for America’s trade deficit with Japan?
Then, beginning Q1 2013, the BOJ revolted to reverse the trade on the US dollar. So, prices are rising in Japan faster than income, with taxes going up — a lethal combo that’ll eventually meet its maker.
Also, Japanese multinationals, once keen on repatriating profits back to the homeland, are now keeping those profits offshore, while expanding their corporate presence abroad. Sound familiar?
Ben Bernanke did lecture Japan long ago. It appears the Bank of Japan has begun to listen.
The German government is the bearer of an interesting practice to deal with a private enterprise contemplating layoffs due to demand deficiency for its products. Instead of paying out benefits to workers rendered unemployed by the layoffs, it considers the merits of incentivizing the company to keeps its employee rolls intact, with adverse effects to overall employee pay mitigated by a government subsidy. Best to illustrate this with an example:
Let’s say a qualified manufacturer in Germany is considering laying off a fifth of its 100-person workforce due to a demand drop for its products. Instead of 80 persons left working, say, 40 hours a week, or 3200 hours total, Germany considers the prospects of all 100 workers staying on with a 20% reduction in hours: 32 hours x 100 workers = 3200 hours, with the German government subsidizing the lost pay of those workers and the employer contributing.
Assume the employees were each making $25 an hour, translating to $1000 per week. The new reduced schedule would drop that to (32 hours per week x $25 per hour) $800 per week. Let’s say the German government decided to contribute 60% of the $200 shortfall per employee, i.e. $120. And the employer decided it would in turn contribute 10% i.e. $20. Then, all 100 employees would keep their jobs, work 32 hours per week instead of 40, and suffer only a $60 {$200 — ($120+$20)} or 6% hit to each individual’s overall paycheck .
No unemployment benefits need to get paid by taxpayers, and 20 workers are saved. The employer does not have to re-hire/re-train when demand picks up, and he/she feels good that nobody lost their job and had to go home and tell that to the spouse and kids.
America needs to look at this program, carefully.
Special Mention: When the German economy is humming, full-time workers on overtime earn credits that do not convert to immediate pay.
When the economy hits a slow patch, or company-specific demand falters, workers reduced to part-time can still enjoy full-time pay, because of those credits.
As of the original date of this writing in 2011…
Annual healthcare expenditure per capita in Japan is less than $3000; in Germany it’s about $3500. How’s the US doing on that chart? — We’re getting to $7500!
Nationwide, employer-sponsored health premiums were up 9 percent in 2011, with more of the same expected the following year. Workers will feel it as their share of premiums and deductibles escalate. The unemployed will feel it, as employers shy even further away from hiring.
WalMart might not be a manufacturer, but it is the nation’s largest private employer. And here’s their response to the cost trajectory: Citing rising healthcare expenditures, in Oct 2011 WalMart made all new part-timers, working less than 24 hours a week on average, ineligible for any of the company’s health insurance plans. New employees working 24 to 33 hours would find their spouses ineligible.
Fact: Mr. Obama’s signature healthcare act failed where it mattered most: bringing healthcare costs down. (No surprises there.) If healthcare costs were heading down, employees would be better taken care of, and employers would do more hiring.
In time, Main Street Gov will seek comprehensive healthcare reform for the nation. Manufacturing needs it. Employees and employers need it. Everybody needs it. If special interests get in the way… what can we say: in the interests of American jobs, they’ll either get in line or be put there.
There is a Wall Street propelled preoccupation in America for companies to beat estimates, and quarterly estimates specifically. Stock options, bonuses, and corner office survival itself, are increasingly sell-side analyst driven.
The necessary/compulsory question thus becomes: is corporate short-term mentality endangering the nation’s long-term welfare, from a jobs perspective in particular? Are durational capital investments losing out to the myopic of quick profits and a fast buck?
We think so. How else would one explain the dichotomy of corporate profits being at an all-time high, while employment is at a low. For those who say it’s not, we remind you: America’s civilian employment to population ratio is near a 30 year low, despite $207 billion in Q3 2011 aggregate profits (as of this writing) among the S&P 500, an all-time high.
In 2006, Ford Motor Co gave incoming CEO Alan Mulally $28 million for 4 months on the job, including $55,469 for relocation and a temporary place to stay.
After Alan Mulally took over as Ford CEO, he slashed North American work forces by a half.
Do you think Germany outsources / goes offshore, using the calculus CEOs do here?
Do you think Germany plays wage arbitrage there, using the calculus CEOs do here?
The duty of a corporation is to its shareholders, sure, but since when did outlandish bonuses, perks and parachutes, serve the shareholder?
Since when did it become okay to fatten a bonus pool in return for trimming a dedicated homegrown labor pool?
Since when did hurt back home not matter?
An American soldier will give his or her life up to save another American. Is it too much to ask an American exec to give up much less?
Peering into many a German manufacturing floor, how many have noticed the great amount of white clothing on those floors?
So, why is a banker here “white collar”, and an assembly worker here “blue collar”?
A factory worker makes something every day — as of recent, bankers break something every other day.
What is a manual laborer anyway? Is he/she the unskilled expendable number, with grease behind the ears and grime under the nails, that our corporate purveyors and private jet-setters make him/her out to be? Or is he/she America’s ticket to a new prosperity?
Main Street Gov believes the latter — firmly.
German CEOs, educators, and unions partnered to build the modern-day German manufacturing machine. The German government, in turn, partnered with them.
Stateside, across the Standard & Poor’s 500 Index of companies, the ratio of CEO compensation to that of ordinary workers, stood at more than 200 in 2012, up 20% since 2009.
Chief Execs at some of the nation’s largest companies earned an average of nearly 400 times times average worker pay. At General Electric, the number was verging on 500.
Some unabashed corner-office guys (and they are often guys) were making more than a 1000 times rank-and-file pay.
This is a problem, considering there was a time (when American manufacturing was actually humming, and in some cases firing on all cylinders), that the corporate chieftains at the largest companies were earning just 35 to 42 times average worker pay.
Stateside, and across the table, there are a number of union-boss demands that require dialogue and debate in the US.
All in all, unions are not the problem that Republicans make them out to be. Given the opportunity at a great many more jobs coming their way, unions can be an integral part of the solution.
Public-sector/Private-sector partnership as a whole, is high and oft-times intense in Germany.
German laborers that are innovative standouts, are often elevated to corporate boardrooms, and routinely appointed to taxpayer funded institutes of research and development, to harness their know-how.
As for those taxpayer funded institutes of R&D, on German soil they are both funded in abundance and abundant in supply.
Can the same be said about R&D on American soil?
In 2007, before the financial crisis hit, a former vice chair of the US Federal Reserve, Alan Blinder, predicted that between 22% and 29% of all US jobs could ship overseas in the coming decades.
If we, as a nation, do not get our own manufacturing boat, that’s leaking fast, into ship-shape soon, imagine the size of the capsize. Imagine how bad unemployment gets then.
Seriously, is anyone in the Democratic Party or Republican Party doing anything visionary to plug the leaks, much less rebuild the ship?
As 2011 came to a conclusion, Mr. Obama’s former budget director, Peter Orszag, told the Financial Times: “The truth is that we don’t know how to fix the US labor market — we are in uncharted territory.”
Actually, Peter, while we would wholeheartedly agree that you and your Establishment peers — both Democrat and Republican — “don’t know how to fix the US labor market“, Main Street Gov would disagree that the territory is “uncharted”. It is in fact very charted.
Only, it depends on what chart you’re looking at. Travel through revolving doors, leading from the Council on Foreign Relations to Government, and then to Wall Street and Citigroup, like you (Peter) did, and the needed chart (we assure you) will get even blurrier.
Nonetheless, it appears that Mr. Orszag’s erosion of peripheral vision is the prevailing view within the Obama Administration, and by extension the modern-day Democratic Party.
As for the modern-day Republican Party … well, let’s just say they would be as idea-less as they are now even after a lobotomy.
According to the Bureau of Labor Statistics, among the fastest growing occupations in America into 2018 are: customer service representatives, food preparation workers, home health aides, and personal home care aides. No degree required.
No matter what one thinks of these occupations, here’s a reality: These jobs take money from one American and shuffle it onto another. However, When an American makes something here and sells it to someone abroad, it’s no longer the same shuffle.
As Robert Reich noted after the celebrated Jan 2012 employment report:
Most of the new jobs being created are in the lower-wage sectors of the economy — hospital orderlies and nursing aides, secretaries and temporary workers, retail and restaurant. Meanwhile, millions of Americans remain working only because they’ve agreed to cuts in wages and benefits. Others are settling for jobs that pay less than the jobs they’ve lost. Entry-level manufacturing jobs are paying half what entry-level manufacturing jobs paid six years ago.
For two decades now, on the net job creation front, the US has been all about services, not tradable goods.
It is said: for every 1 job on a factory floor, there can be as many as 15 jobs off that factory floor. Now that’s what we call a multiplier.
For a revival of the increasingly unemployed, underemployed, and underpaid middle class, a revival in manufacturing must be Mission Central.
If we are to raise the poor from the edge of darkness up to the light, we must find them jobs.
If we are to raise the indebted-educated from the edge of frustration up to the light, we must find them high-paying jobs.
Consumption without Production is America on Sale to the rest of the world.
Welcome to a Main Street Gov blueprint for an American Manufacturing boom reborn.
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