Posted on 05/23/2003 5:49:40 AM PDT by Phaedrus
The Design and Manufacturing Show was held in Chicago on March 5, 2003. Bob Dwyer is a manufacturing representative with 19 years of experience and was one of the participants. His observations should make us reflect on the fundamental crisis regarding what has gone wrong with the American economy, its corporate culture, job creation and economic growth, and the heavy hand of government interference in the name of political correctness.
His concerns also illustrate the deception and disconnection of the transnational establishment and corporate sector from our core, our foundation, our value as a nation-state and certainly the disconnect from the average worker.
As it is, neither government nor transnational corporate entities seem to recognize there is a problem. They sing the siren song of free markets and free trade with no understanding of them. That song is repeated over and over again without consideration as to how damaging their version of free trade is in its current form. There is a willful blindness on the part of some to the damage being done to American society, the nation-state republic, the citizens, workers, taxpayers and to our national cohesion.
The Manufacturing Story
“I told CNBC … that it was a slow show, said Dwyer. “I didn’t mention the flow of Chinese [industrial] spies who were in and out of our booths. I told the CNBC reporter that I have been informed by some Fortune 500 firms that they are not considering domestic suppliers for contract manufacturing work. I have been told that my Wisconsin-based company would not be considered for work unless we have a “presence” in Mexico, China or other countries. Large firms with government contracts have also told me that they cannot consider my company because we are not minority owned, woman owned, or located in a hubzone, a disadvantaged area. In 2002, one firm said that they could not consider using my company for the entire year because they were behind on their ‘disadvantaged’ quotas.”
Dwyer added, “I am concerned that the WTO [formerly GATT], NAFTA and the upcoming FTAA are putting United States businesses at a disadvantage. It appears that unelected bureaucrats have too much power in deciding the fates of American businesses. Foreign companies do not have the additional regulatory or health care costs that are paid by United States firms. I have spoken to lobbyists in Washington, D.C., and I came away with the sense that the people involved in making these agreements are not as concerned with obtaining fair trade as they are in earning commissions on the deals they finalize. One wonders if any dealmakers have a true, clear picture of the state of manufacturing in America.”
At the Manufacturing Show, U.S. Commerce Secretary Don Evans spoke about the “great things” that American companies were doing to compete in the global economy. He mentioned Motorola as one example.
Motorola, of course, has spent $1 billion in transferring its production to China. It is about to invest another $90 million in research and development in China. Very little of Motorola is now in the United States. Yet Evans considered that a success story. Problem is that not only has Motorola transferred jobs and production to China, it has also transferred crucial technology as well.
Bob Dwyer is not the only manufacturer concerned about the future of manufacturing in the U.S. At a recent meeting in Asheville, N.C., as reported in the Asheville Citizen-Times, Augustine Tantillo, former chief of staff for former U.S. Sen. Strom Thurmond, R-S.C., and a former U.S. Department of Commerce official, had some harsh truths to relate to power.
“Government officials have not grasped how crucial manufacturing jobs are to the American economy and how devastating looser trade restrictions have been to those jobs,” said Tantillo, now of the American Manufacturing Trade Action Coalition, before about 90 people at a manufacturing summit.
He maintained, “Government leaders and others believed for much of the '90s that the country was undergoing a transition from a manufacturing-based economy to a knowledge-based one.”
"Then the [tech] bubble burst, and we began to learn a very hard lesson and that is there's only a few ways to create wealth," he said. "You have to either farm something, mine something or manufacture something. The bubble burst. Unfortunately, our policy makers are acting as if it had not."
Chalmers Johnson, the author of “MITI and the Japanese Miracle,” stated the profound nature of the U.S. transformation very well. “It is close to impossible to get Americans today to understand that an economy based on manufacturing and an economy based on finance are not equivalent. Manufacturing provides jobs for the largest number of citizens; finance is the non value-adding but crisis-provoking segment of modern society. Japan is the world's leading manufacturing country; the United States is the stronghold of finance capitalism.”
But what happens when the stock market and financial transactions, mergers and acquisitions and leveraged buyouts are no longer enough to keep the American economic engine going? Economist Robert Scott writes: “All 50 states and the District of Columbia have experienced a net loss of jobs since the implementation of NAFTA in 1994 and the creation of the WTO in 1995. Between 1994 and 2000, the U.S. lost more than 3 million jobs and job opportunities – equal to 2.3% of the labor force. Exports rose over the period, but imports rose faster, yielding net job loss figures ranging from a low of 6,000 in North Dakota to a high of 310,000 in California. Other hard-hit states – over 100,000 jobs lost in each – include Texas, New York, Michigan, Pennsylvania, Illinois, Ohio, North Carolina, Indiana, and Florida.”
Furthermore, he writes, “These states have high concentrations of the kinds of industries (motor vehicles, textiles and apparel, computers and electrical appliances) where production has shifted most rapidly to export-processing zones in China, Mexico, and other countries since NAFTA and the WTO took effect.”
In addition, companies in the electronic and technical areas have been complaining about foreign competition for years. Much of it amounted to dumping goods on the American market – often after having copied our technology, then selling it back to us at prices which American manufacturers can’t compete with.
As businessman, economist and author of “In Praise of Hard Industries,” Eammon Fingleton relates, “the United States in the space of a single generation is presiding over the sell-off of much of its industrial and commercial base. This base required the sweat and enterprise of many earlier generations to create.”
Economic Ebola
The 2002 report to Congress from the U.S. China Security Review Commission states: “Over 90 percent of the FDI (foreign direct investment) attracted to the U.S. was for the purpose of acquiring ownership of existing U.S. businesses. The opposite is true for FDI flows into China where estimates indicate that 90 percent of FDI is destined to establish new operations. In short, U.S. capital and Chinese labor are manufacturing products in China for both the Chinese and American markets. U.S. manufacturing workers are increasingly displaced.”
A phenomenon in recent years that Fingleton notes is that major American corporations have been taken over by foreign interests that include Amoco taken over by British Petroleum and Chrysler by Daimler-Benz. American finance is held by foreign entities: First Boston, for instance, is owned by Credit Suisse, Republic Bank by HSBC Bank USA, Dillon Read by Union Bank of Switzerland, the Kemper Corporation by Zurich Insurance, and Bankers Trust by Deutsche Bank. We must now add Bank of America as well.
The list extends to American book publishing, half of which companies are German owned. Dot coms as well have been impacted, including Yahoo! and E-Trade, Datek, Cisco Systems and MP3.com.
Not long ago the Anglo-Dutch food company Unilever bought out Ben and Jerry’s Ice Cream – just as in the mid-1980s a British consortium bought out the family-owned Pillsbury, split it up, sold off profitable sectors and the flourmills, and finally sold what was left to General Mills.
Meanwhile, Siemens of Germany bought out Westinghouse’s generating sector in 1998 and sold it to a French concern. While Westinghouse was beating the drums for Most Favored Nation (MFN) status for China, lobbying the Clinton White House, it was also making a deal to sell on credit its AP600 nuclear reactor to China. The Chinese required that the reactor be built with Chinese labor, and the jobs Westinghouse promised for American workers never materialized.
Westinghouse also knew it was divesting itself of most of its American operations, making its support of MFN status for China rather self-serving, not to mention on the lower end of an ethical scale in conducting business.
But so what else is new in the more recent climate of ethical collapse in government and corporate America? Two bedfellows who continue to act as if the best interests of the United States mean nothing.
Then of course there is Germany’s Siemens, Inc., which has some operations in the U.S. and is a rather bad actor in the scheme of things. It doesn’t even hide the fact it is outsourcing U.S. technical jobs that were supposed to be part of America’s “new economy.”
However, a transnational has no loyalty to American interests. It is dumb to think otherwise. Certainly it has no loyalty to America’s highly educated and trained technical workers.
Like other technology concerns, Siemens played fast and loose with American jobs and as a result, the U.S. economy is the poorer. All in the name of cutting costs. Swell in the short term, but the loss of American high-tech jobs in the process and the importation or outsourcing in order to employ cheaper labor means that wages will continue to be depressed.
Transnational corporations have no commitment to building companies in the U.S. Leveraged buyouts of American companies through mergers and acquisitions are not creating more companies, but are buying and selling out American assets. Downsizing has occurred in many of these buyouts, leaving large numbers of Americans out of a job.
So they will find other jobs, better jobs, you say? Not necessarily.
In fact, U.S. Department of Labor statistics show over 50 percent of the time those who are re-employed earn up to 20 percent less than they did in their previous jobs. It doesn’t take a Harvard economist to figure out that at some point Americans will no longer be able to buy “stuff” from China, or anywhere else for that matter, as jobs are outsourced, downsized or sent overseas.
The High-Tech Job Betrayal
It isn’t just manufacturing that is taking a hit. Now U.S. banks, brokers, insurance and other financial groups plan to move 500,000 jobs overseas in the next five years, with India the most enticing target. Relocations to foreign nations like China and India were expected to save $30 billion a year in operating costs, reported the management consulting firm A.T. Kearney, which spoke to about 100 financial services firms' executives.
Companies like CIGNA and AETNA are outsourcing or sending technical and office jobs to places like India, the first choice. Followed by Canada, Brazil, Mexico, Philippines, Hungary, Ireland, Czech Republic, Australia, Russia and China.
CIGNA is also importing foreign replacement workers; and laying off Americans using Congressional approved L-1 visas. Representative Nancy Johnson, R-CT is asking CIGNA, Aetna and other companies to answer why they are firing local workers and replacing them with non-immigrant workers. The L-1 visa system allows for outsourcing through a foreign company or consulting firm using foreign technical labor at lower wages or replacing older workers with new and cheaper blood. (http://www.nbc30.com/nbc30/2190071/detail.html)
Granted, the dimwitted Congress gave the technical transnationals as well as many American companies carte blanche to play fast and loose with the work visa system. Congress did so by increasing the numbers of H-1B and L-1 visa holders in 1998. They allowed the hiring of replacement workers for American technical personnel at lower wages. This is well documented by Dr. Norman Matloff, University of California-Davis, as well as the Cornell study and several other research efforts.
Nonetheless, as in the case of Siemens, a transnational that constantly acts the transnational whore, may be in need of a dose of reality. If Congress allows this job displacement of American workers to continue, sooner or later it will catch up with them. Siemen’s even admits using the L-1 visa scam to outsource hiring to consulting firms like the Indian concern, Tata Consulting.
As former Siemen’s employee Mike Eamons reports: “JP Morgan Tampa, Siemens Energy & Automotive Atlanta, American Express, Siemens Shared Services Orlando. In fact, Siemens Shared Services used the ‘L-1’ visa to replace their Accounts Payable staff with Indians from India. It's not just the Information Technology industry that is targeted.”
The great friend of the workingman, Sen. Hillary Clinton, recently praised the opening of Tata Consulting's new Buffalo office at the same time Americans were training their Tata Consulting employees/foreign replacement workers at Siemens in Lake Mary, Fla. (http://tp: //www.hannatroup.com:81/USA/tata/HillaryTCS.html; http://www.hannatroup.com:81/USA/tata/TCSFears.ht)
You would think that our representatives would listen. Perhaps when hell freezes over. They listen to the big checks that companies like Siemens put in the campaign war chests and that is all.
As Eamons says, “Over eight months of begging and pleading for help from the likes of Florida Senator Bob Graham (D), Florida Senator Bill Nelson (D) and Florida Representative John L. Mica (R) have gotten us nowhere.”
Meanwhile, American companies are leaving the U.S. by the dozens. They now include Maytag. It is bailing out even after Illinois gave the company nearly $8 million in loans and grants, while the city of Galesburg raised $3 million and hiked its sales tax to help Maytag survive.
Unions even granted concessions, but the CEO of Maytag said they just couldn’t compete with products made in Mexico with cheap labor and few taxes or regulations. The American market was being flooded with cheap goods and Maytag could no longer compete.
You can hardly blame Maytag, but “free trade” has not made the vast majority of Third World workers any richer nor has it helped the U.S. retain the core of its economic strength in manufacturing and now technical jobs as well.
The poor remain poor in countries like Mexico. In the first half of the 1990s there was economic growth in Mexico. Nonetheless, the number of people living below the poverty line increased by 14 million in the 10 years from the mid-1980s. This was due to the fact that the benefits of a more open market all went to the large commercial operators, with the small concerns being squeezed out.
One can hardly blame a company for trying to get around thousands of regulations, 75,000 pages in the Federal Register, diversity demands, countless lawsuits, and a 45,000-page tax code that requires a phalanx of lawyers and tax accountants to wade through. The regulation gorilla alone adds $700 billion to costs for individuals and companies in the U.S. They hurt the “little” guy the most.
Unfortunately, however, there are still too many in Congress who still think taxes and regulations don’t drive business out. They need to get a grip before they destroy this country.
Notwithstanding, the U.S. Bureau of Labor Statistics reveals that unemployment among electronic engineers who are U.S. citizens is 7 percent. Among computer hardware engineers it is 6.5 percent. Unemployment across the board is at 6 percent and some forecasts indicate it will rise to nearly 7 percent by fall of 2003.
Now Congress must renew the H-1B and L-1 visa and decide whether or not to revert to the original numbers of 65,000 per year from 195,000 per year presently. (See “H-1B: Bombing the Middle Class.”)
We are still faced with the importation of cheap labor, through legal and illegal immigration. That has had a devastating impact on the social infrastructure in states like California, Texas, Florida, New York, North Carolina, Illinois, Arizona, New Mexico and Nevada. Even many northern states have budget deficits in the billions due to lower revenues and having to absorb higher costs in social, educational, and medical costs partly due to tremendous increases in immigration.
It should also worry Americans that at some point, we may have to choose whether to abide by the decisions of an outside entity such as the World Trade Organization rather than look to our own interests.
We may be forced to accept foreign workers, because we signed the WTO agreement. An Indian consortium is bringing suit against the U.S. if we restrict work visas, like H-1B or L-1 visas, for entrance into the U.S. This same group is pressuring Congress and the State Department to create a new visa category for workers from India or Pakistan and potentially China.
If the WTO agrees to accept the case and the Indian group wins, that means that the U.S. will have to change its immigration laws to suit the WTO, Indian economic interests and foreign guest workers.
The Bottom Line
Indeed, transnationals are corporations without countries. Since much of the ownership in stock, bonds and actual plant itself in the U.S. is now in foreign hands, their only requirement is stability.
In fact, the end game of these entities is to pursue broad markets upon which international elites play economic games. The "market" is the ultimate good. It takes precedence over U.S. political or social needs. In that ultimate perfect whole market, nation-states as political entities are simply part of the economic picture and not ends in themselves.
Am I being anti-capitalist? Unfortunately, in the short time since the collapse of the Soviet Union and since unfree "free markets" ascended to the status of the Golden Rule, the Borg-like collective attitude of transnationals has become the norm and it is not a good omen for the nation-state called America.
With the help of Congress, various administrations and pressure to open American markets to foreign goods, the economic establishment sold out low-tech manufacturing in the name of free trade several decades ago. This was supposedly to create more and better American jobs and to expand free-market capitalism to many countries.
Some jobs were created. But as more people became wealthy, the vast majority remained in place in terms of real dollars and what they would buy. In fact, wages for people working in American manufacturing or retail don't buy nearly what they used to in terms of real dollars compared to what the dollar would buy in 1973 or 1982.
Meanwhile, manufacturing wages were at their highest real wealth function in 1979. Since 1979, the manufacturing sector has been over taken by the retail sector in numbers of jobs created, along with food service sector. But those are low-paying jobs, usually under $30,000 a year.
The retail sector or food service sector has never even come close to matching the buying power or staying power in terms of real wages of manufacturing jobs. In addition, more recently, white-collar high tech American labor finds that foreign workers under H-1B are replacing them or L-1 visas or their jobs are being sent to India or China, Ireland or Eastern Europe. The American dream is rapidly turning into a nightmare.
Adam Smith and the Mess We Are In
The St. Thomas Aquinas of Capitalism, Adam Smith, would weep. He never realized that a nation would be so foolish as to sell off its assets and give up its comparative advantage on the whim of transnational businessmen who have no loyalty to any nation. How could he have understood that a nation would throw out quality for quantity? He never figured an ostensibly capitalist nation such as the U.S. would shoot itself in the foot by perverting the doctrine of free trade and the free market.
Smith was also smart enough to know that businessmen and government working together can be a dangerous mix. That is why in the U.S. today we don't really have capitalism but rather corporatism; that is where government and business corrupt the market in unison. In the end they kill off the goose that lays those golden eggs and they do so without a care for the future, as they live in the virtual reality of things being as they always were.
Smith's comment about the nature of businessmen applies to managerial bureaucratic government types as well. He said, "silent with regard to the pernicious effects of their own gains … neither are, nor ought to be, the rulers of mankind."
Smith might have understood that the amoral cohabitation between large corporations and the government usually clash with the best interests of a nation. Too bad most of us never read his 1,000-page tome to get the entire picture. Certainly free traders, transnational corporations and our government leaders never have.
"I didn’t mention the flow of Chinese [industrial] spies who were in and out of our booths.
Smith was also smart enough to know that businessmen and government working together can be a dangerous mix. That is why in the U.S. today we don't really have capitalism but rather corporatism; that is where government and business corrupt the market in unison.
We are still faced with the importation of cheap labor, through legal and illegal immigration. That has had a devastating impact on the social infrastructure in states like California, Texas, Florida, New York, North Carolina, Illinois, Arizona, New Mexico and Nevada. Even many northern states have budget deficits in the billions due to lower revenues and having to absorb higher costs in social, educational, and medical costs partly due to tremendous increases in immigration.
If the WTO agrees to accept the case and the Indian group wins, that means that the U.S. will have to change its immigration laws to suit the WTO, Indian economic interests and foreign guest workers.
Not all Americans have the skill-sets to successfully participate in an economy primarily centered around finance and information technology, either. I've read reports that state that a high school graduate in the U.S. has far less choice in terms of occupations than do his counterparts in most other developed countries.
As noted, most small business owners pay taxes at the personal rate. Cut their taxes, and they have more money to plow back into their businesses, as capital investment and as new-hire employee salaries. Thus job expansion and technological innovation are both benefited by cuts in marginal tax rates.
Of course, the Dims either don't get this -- or they do get it, and just don't want to see Bush economic policies succeed. They keep intoning the tired ol' mantra: "He's trying to get tax cuts for his rich friends and corporations!!!" What dunces they are. They would be completely irrelevant -- except for the fact that we can't seem to get them out of our faces and out of the way of needed economic reform. :^)
Most small businesses don't have the clout to lobby for special tax loopholes either. Nor do they have the ability to shift income to foreign subsidiaries and avoid taxes altogether. And then we get to the expensing of stock options for tax purposes, which one could argue gives an edge to publicly traded companies, which are generally larger in size. And the list goes on and on...
Seein that we're the largest exporter in the world, that's pretty darn good for a service economy.
It sure does, independentmind. Plus there's no ability to shelter personal wealth from current taxation inside the business. If you're a small business owner, all profits are currently taxable in the year they're earned.
A recent Wall Street Journal editorial gave a telling example of this. If you're a Warren Buffett -- the majority stockholder in Berkshire-Hathaway -- you can shelter your profits inside the business. Sure, taxes will be paid on profits, but at the corporate, not the personal rate. Berkshire-Hathaway retains earnings -- i.e., it does not distribute dividends to stockholders. I thought this was an interesting fact; for Mr. Buffett has been loudly editorializing against the Bush proposal to eliminate taxation of dividends. If such a provision were to be enacted, there would be considerable pressure on corporations to distribute dividends -- meaning that there would be reduced incentives to accumulating personal wealth inside a majority-owned business. Sure, Mr. Buffett would receive his dividends tax-free, just like the little guy. But in the case of Berkshire-Hathaway -- which has a history of expanding by means of acquisitions -- there would be less retained earnings to fund such a "growth strategy." Instead, shareholders would receive business profits to which they are entitled.
I read recently that Microsoft has something like a $400-$500 million cash position due to retained earnings. Sure, to some extent this is reflected in the share price. Yet still I wonder whether another purpose of following this strategy is simply to have sufficient means to defend the firm against hostile take-overs. Meanwhile, under current law, the "little guy" shareholder doesn't get paid -- though the managerial class gets to effectively defend its own positions, and large shareholders get to shelter their pro-rata profits from current taxes.
Yeah, Chi-townChief. But if the economy doesn't start "percolating" pretty soon, it's going down the tubes. If the Dims know this, do you suppose they care -- or is scoring points against the president, and winning the next election, more important to them than the prosperity of their fellow citizens?
Dividends are also paid in cash, which are a lot harder to fudge in financial statements. Any incentives to encourage the regular payment of dividends would be a good thing.
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