Posted on 02/09/2011 10:22:59 AM PST by FromLori
We Don't Need No Stinkin' Jobs (In The U.S.)
Global Corporate America has decoupled from the American middle class; its interests are now international rather than domestic.
Global Corporate America has been decoupling from its country of origin for a long time, and the last weak bonds appear to be snapping.
Longtime correspondent Cheryl A. recently submitted this snippet from a recent The Atlantic article The Rise of the New Global Elite and this summary: "This is disturbing on so many levels."
The U.S.-based CEO of one of the world’s largest hedge funds told me that his firm’s investment committee often discusses the question of who wins and who loses in today’s economy. In a recent internal debate, he said, one of his senior colleagues had argued that the hollowing-out of the American middle class didn’t really matter. "His point was that if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade," the CEO recalled.
The growing dependence of Global Corporate America on non-U.S. growth and profits, and the concurrent rise of its political power at the expense of the middle class, is displayed in this chart:
Let's look at the number of consumers of global U.S. corporations' goods and services in aggregate. According to the FDIC, about 25% of Americans have little or no access to credit. This is an excellent metric of proverty: in other words, 75 million Americans are too poor to purchase much more than rent (subsidized by Section 8 vouchers, etc.) food (subsidized by SNAP food stamps), minimal healthcare (subsidized by Medicaid), toothpaste, cable TV, mobile phone service and fancy footwear made in Asia. (Every "poor" person above the level of homeless I see on the subway or bus has fancy footwear and a cellphone.)
That leaves about 225 million Americans with enough discretionary income to be more rabid consumers of global corporate America's goods and services.
Alas, the U.S. is a mature consumer economy and the limits of consumer debt and leveraging seem to have been reached. As a result, corporate revenue growth in the domestic market is limited to GDP growth (most of which is generated by Federal borrowing and spending at this point): roughly 2-3%.
You can't "grow profits" 10% a year on this sort of tepid growth. So Corporate America's focus on international markets is not just rational but essential: there is no other way to grow revenues and profits.
The vast majority of new revenues and profits come from non-U.S. sales. Here is a snippet from David Rosenberg:
We scoured the data as best we could and found that almost all the growth in sales is coming from outside the U.S.A. where revenues are growing at barely a 3% annual rate. The pace is around 20% for foreign-derived sources. Here are some "back of the envelope" estimates for global consumers of U.S.-based corporations' goods and services.
China: 450 million consumers of toothpaste, etc., 225 million consumers of autos, smart phones, "financial services," etc.
India: 450 million consumers of toothpaste, etc., 150 million consumers of autos, smart phones, "financial services," etc.
Greater Europe: 450 million consumers of toothpaste, etc. 350 million consumers of autos, smart phones, "financial services," etc.
East and South Asia: 450 million consumers of toothpaste, etc. 225 million consumers of autos, smart phones, "financial services," etc.
Mideast/Africa: 450 million consumers of toothpaste, etc. 50 million consumers of autos, smart phones, "financial services," etc.
Oceania/Philippines/Australia/New Zealand: 100 million consumers of toothpaste, etc. 50 million consumers of autos, smart phones, "financial services," etc.
That's roughly 2.25 billion potential consumers of toothpaste and 1 billion potential consumers of other goods and services sold by Global Corporate America.
That means the domestic populace is around 15% of all potential consumers of at least some goods, and at best a mere quarter of all consumers of higher-cost goods and services.
One of the more eye-opening elements of global travel is to enter a tiny village store in Japan, Korea, China, Thailand, etc. and find Oreos and Crest toothpaste for sale.
How many more units of toothpaste and Oreos can be sold in the U.S.? Not many. How many more could be sold to 2 billion other people? A lot.
Corporations are operated by people. Their loyalty during their working hours is to the corporation, and the goal of the corporation is to maximize return on investment for the shareholders, owners and senior managers who will profit most from rising revenues and profits.
To expect corporations to extend loyalty to a nation is to misunderstand the entire purpose and directive of the corporation as an enterprise.
Is it merely coincidental that corporate profits from non-U.S. sales were flat during the heyday of the U.S. middle class, and that they have been rising as the middle class loses ground? I think this chart makes a strong case for a direct correlation. Global corporations now have the resources to influence the machinery of governance in their favor, and as noted above, this is the rational and necessary result of their prime directives and loyalties.
To decline to lobby the Federal government could spell disaster for a company's revenues and profits should competitors succeed in wiring the market to their advantage. Thus there is no choice now but to lobby for one's own interests. With corporate profits exceeding $1 trillion, the costs of influencing politics is now trivial.
The middle class is comparatively powerless: it is not a source of campaign funding, and half of its members don't even bother to vote. Most of those who do vote are swayed by easily purchased, expertly contrived propaganda.
The ideal setup for Global Corporate America is domestic stability. The erosion of the American middle class is of little concern for one simple reason: it no longer matters much on the global stage. All that Global Corporate America needs from America is a stable foundation that won't offer up any surprises or spots of bother.
As the discretionary purchasing power of the American middle class erodes, four times as many new potential customers appear elsewhere, hungry to taste the Oreos, become consumed by the iPhone, etc., and ten times as many are potential buyers of toothpaste and other basics.
The concern for domestic jobs is mere political expediency. U.S. corporations are pulling $500 billion in profits from non-U.S. sales, and they hold $1 trillion in stashed overseas profits in various tax havens. All the growth in their revenues and profits are coming from non-U.S. sources. Spending $3-$5 billion on lobbying and campaign contributions is an "investment" with extremely high returns: for that small sum, U.S.-based global corporations make sure the U.S. government and citizenry don't become overly burdensome or obstructive.
Related thread
68% Believe Government and Big Business Work Together Against the Rest of Us
http://www.freerepublic.com/focus/f-news/2670995/posts
I really hate marxist terms like “middle class”.
I really hate to see our middle class shrink when I was growing up they were the envy of the world.
Your thoughts?
Corporate boardrooms show their true colors, and those colors aren’t red, white, and blue.
Here’a a thought. All of us who have any stock at all in any of these treasonous companies should DUMP them post-haste. If you must put your money somewhere, buy gold.
Send ‘em into a financial tailspin that will teach them a lesson they’ll never ever forget.
Or for those of you who don’t want to divest of your holdings, show up at the shareholder’s meetings and create as big of a ruckus as you can. throw as many monkey wrenches into their plans as you’re able to. You can start with derivative actions.
It makes a good case for taxing foreign profits and getting off OUR backs, but they’d just move.
It’s an ugly mess with no solution as long as millions are aborted every year here and we don’t grow!
Um...we just bailed them out of one of those.
Um...we just bailed them out of one of those.
And?
bookmark
“Here’a a thought. All of us who have any stock at all in any of these treasonous companies should DUMP them post-haste. If you must put your money somewhere, buy gold.
Send ‘em into a financial tailspin that will teach them a lesson they’ll never ever forget.”
Exactly right...we are financing our own demise.
Like I said.
Patriotic Americans should divest themselves of stock in these companies.
A great deal of recent corporate profits have occurred from producing in one low cost, low tax, and low regulatory - with all the benefits of the tech explosion - to a country with a far higher standard of living and access to easy credit. I’d argue that profits weren’t as good back in the day when you were producing in the U.S. and selling here too because it was a parity situation.
Generating internal demand may not be as easy with that advantage gone. And don’t be fooled, cheap tax and regulatory situations are an illusion in these countries. If the govt wants something they just tend to take it, you don’t have half the protections you do here. Corporations may be unpleasantly surprised if they ditch the American consumer. The article sort of contradicts itself here as producing in China and selling in China isn’t going to improve margins either, just sales growth. They hope anyway. And cheaper operating environments will favor small, creative, nimble, and tech superior small companies. Big corps might get their lunch ate.
Not to mention Americans tend to put up with the quality control issues that still plague China and make their products seem cheaper than they are. Even with all our burdens, it actually is still cheaper to make it in the U.S. because we generally do it right the first time. When you count rework, you lose on producing it in China. Problem is the bean counters don’t want to think more than an inch deep. Foreign consumers might be more picky, living standards may not grow like corps want, have a much higher savings rate, and a myriad of other factors that might not be what the corps hope to be.
The middle class may not have lobbying power, but we do have a vote, like we did in 2010. If we can get spending and regs down, and make things palatable for small business again, and focus on tech, we could do quite a bit to be competitive. Whether we will or not remains to be seen.
Great observation thank you. I was recently reading how China steals our technology and bribes business’s in fact I posted an article about it. Someone had made the comment a complaint should be made to the WTO I had to laugh at that one.
I see this all as very short sighted on the part of our politicians who supported so called free trade. It certainly wasn’t fair trade as the taxes were structured to benefit the foreign countries. I also think it was a mistake to give our enemies, i.e, China the jobs and the money they created look at the size and ability of their well equipped globally capable military now. You would almost think they had a plan to bring American’s down to the level of the third world countries :)
I am well aware of our regulatory environment and it’s job killing tendencies but there is more to this story Fascism comes to mind.
“If the government would do it part in helping lower the cost of doing business and hiring people, boardroom would elect to do more more business and manufacturing here at home”
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With all due respect to you, that’s the pat answer that all free traders give. But US manufacturers have figured out that even with zero regulation and big wage concessions from the Unions... it would still be cheaper to manufacture in China.
So its a zero sum game and “all things being equal”, the US manufacturers will stay in China because it is too easy to do that instead of going back to the hassle of actually managing a factory workforce here.... even a cheaper one.
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