December 16, 2010

Can Business Help Reverse Rising U.S. Inequality?

Robert Reich shows us more and more on how rapidly inequality continues to rise in the wake of this great recession:
"Why are America’s two economies going in opposite directions?
Two reasons:

First, big profits are coming from overseas sales of goods and services made abroad, not here. The world’s fastest-growing markets are China and India, whose inhabitants are eager to buy “American” products, and just as eager to work for the American companies that sell them. The U.S. market is barely moving.

Increasingly, American corporations are able to extract healthy gains from their global operations without adding much in the United States except executive talent.

Second, American businesses are boosting productivity by having U.S. employees do more work for less pay. According to the Bureau of Labor Statistics, between the third quarter of 2009 and the third quarter of 2010, productivity rose 2.5 percent, output increased 4.1 percent, the number of hours worked was up 1.6 percent, and unit labor costs dropped by 1.9 percent.

In other words, American workers are losing even more bargaining power as a sizeable chunk of corporate profit goes into software and digital equipment that can do what people used to do – but more cheaply."
His view of course, if you know much about him, is that the solution to this, if there is one, is entirely regulatory. We could for example have a more progressive tax system, spend more on education, discourage offshoring, and create a non-offshorable green energy industry.

But is there anything the private sector can (and should) do about this on its own? I should think so.

Trouble is, big U.S. corporations tend to think less and less of themselves as American, with any implied moral obligations to this, or any particular nation. For they are "multinationals." No matter that most all relied on this country in order to get where they are today. And that their executive classes, as Reich points out, are still very much based in the U.S.

It would seem, as I have argued here, that it would be irrational (or merely unethical) for the U.S. government not to enact policies to stem this tide in the interest if its citizens--and for those citizens to continue supporting policies that work in this way against them. Unfortunately, if the current congressional stalemate is any indication, irrationality in the citizenry abounds.

But then it would also be irrational for citizens to knowingly support companies that do not make concerted effort to address social (and environmental issues) such as growing inequality. Indeed, rational citizens should be willing to go out of their way to patronize the companies who do make that effort. And those rational, good samaritan citizen-consumers do certainly exist, and in rather large and growing numbers. So there is a market demand for business virtue.

Still, while virtue is its own reward and tends to pay off in the end, shortsightedness pays off right now. So without a government willing to help level the playing field at least a bit by encouraging good corporate samaritans and discouraging bad corporate samaritans, little can be done to stem this (or any) societal hemorrhage.


  1. It's not surprising that Robert Reich blames inequality on corporate behavior and fails to even concede that some of the blame should be placed on the lack of a work ethic in today's society. I see it in my university teaching. Young people are not motivated to pursue excellence in everything they do. Instead, far too many are looking for shortcuts and seek merely to satisfy their own interests. If corporate America has one responsibility it is to help train young people to be productive members of society. I would include those who have been displaced as a result of the current economic downturn. Many lack the skills necessary to be successful in today's globally competitive, interconnected world. To place the blame on corporations and not see the lack of personal responsibility does nothing to improve the lot of those in society who are (believe) they have been treated unequally.

  2. Fair point Steven. The entitlement attitude of many youth has indeed gotten staggering. To the point of widespread functional illiteracy. It's a public embarrassment and one all too many teachers and parents exacerbate for fear of being marked as too strict. It certainly doesn't keep us competitive as a country. But that is really a separate issue.

    I don't know why you say this is not surprising coming from Robert Reich. Sounds like an ad hominem. Do you disagree with his economic analysis? Regardless, he is not blaming corporations. Quite the opposite in fact. He places the blame almost entirely on government as he believes that genuinely positive corporate social responsibility is impossible in big corporations nowadays because of an overly competitive market and too few socially-responsible consumers (I actually disagree with him on this as I think myriad opportunities to effect market change at the highest levels of corporate power are being squandered and I can provide plenty of positive counterexamples).

    In any case, it seems like you are implying that American workers could outcompete, say, Indian workers if only they had the necessary skills and motivation. In truth, this is not the case. Millions of good American jobs are going to India not so much because the workers are more efficient, for they are generally about 10 times less efficient, especially in computer programming, yet demand is so high that they don't need to worry much about being fired for poor performance. IBM for example has moved most jobs to such places primarily because each worker works for 20 times less pay. That's a structural economic issue. And it has nothing to do with laziness. There are plenty of very hardworking people in this country. In fact, Americans now work harder and longer than workers in any other developed country.

  3. I'm not sure it's even rational for American students to go into information technology when they may very well have to move to India or Brazil to find work. So some of the cynicism of college students nowadays might be understandable.

  4. Business CAN help reverse the inequality in America. In fact, ONLY business can reverse it. However, not unless and until the interests of business are aligned with the interests of the American populace as a whole.

    That is a NECESSARY but not SUFFICIENT condition for such reversal. Regulation is, in fact, needed as well. Even Adam Smith recognized the propensity of business to deceive and swindle the public for their own perceived gain.

    However, regulation is also NECESSARY but not SUFFICIENT to effect the reversal. One of the valid points that business contends is that there is such a thing as overregulation, when regulation becomes so intrusive and oppressive that it acts against the legitimate shared interests of business and the American populace.

    Unfortunately, this contention has been used to drive a wedge between the American populace and its own interests, a wedge that of late has been more of a maul to separate workers (now increasingly overseas) from consumers (with decreasingly fewer resources to consume, and thus support business).

    The vast majority of people - even in corporations - are linear thinkers. If deregulation is a good thing, then more deregulation must be better; just as in an earlier time, the thinking was, if regulation is good, then more regulation is perforce better.

    Such linear thinking resulted - perhaps post-Powell Memo - in corporate policy makers losing sight of the sustainable common interests they share with the American populace and instead applying a win/lose game theory strategy against the public at large.

    Thus it would become natural to wish to "starve the beast", co-opt the only overt means regular people have to address corporate overreach - legislation and regulation - and press business' natural advantages. In the "pro-business" bacchanalia of the last 30 years, this is precisely what has happened. Legislatures are bought and owned by business which has lost sight of interests in common with society as a whole; thus regulations are weakened and/or eliminated, treaties are concluded which are one-sided with respect to capital being free to move about while labor's movement is constrained, agreements forged which allow for the circumventing of penalties and any checks on behavior patently inimical to the interests of the general public. Regulatory agencies and individual regulators are "weeded out" to ensure the smooth execution (sic) of linear - and thus myopic - perceived business interests.

    This is a gypsy moth strategy, and just as gypsy moths propagate, propagate, propagate until their numbers are unsustainable and experience a calamitous decline, so does the idea that profits can be maximize, maximized, maximized at the expense of the public at large. Ultimately, there is too much win and too much lose, with calamitous results.

    "The business of America is business" may be true, but not to the detriment of Americans. In the 1920s it was in business' interest that Americans flourish; in 2010, not so much. This cannot go on forever - it is unsustainable.

    It is very much like a party on a 747, careening along with no pilot. Great time, right until the moment when the plane slams into the mountainside...

  5. Interesting comments Gavino.

    But I'm not sure why you say it's unsustainable exactly. Do you mean ecologically? Seems to me that there's no reason why this country can't continue to become more and more unequal, with a massive underclass hired to serve the localized needs of an elite upper class.

    BTW: Speaking of regulation, Lydia Llazar has just suggested to me upon reading this blog, that it might be a good idea to have cascading corporate tax rates related to the percent of US jobs created annually by a particular firm. That would certainly be a great start, even if so many big players seem to continually avoid paying any taxes at all.

  6. No I wasn't specifically speaking ecologically, altho that might happen first.

    I was saying it with respect to the corporate masters. Altho inequality can seemingly go on indefinitely - and I would claim it cannot - irrespective of that, for any individual, you've got a big game of king of the hill, or, if you like naturalism, alpha male. Ultimately, you won't be king of the hill long. Ultimately, some younger male will take over the pride.

    Fabulous wealth will be gotten by a smaller and smaller handful, to the point where even some of those doing well now will get aced out, it being a zero sum game. Power, wealth consolidated in fewer and fewer hands.

    This is where the mob found itself continually. Somebody would try to pull off icing out the other families. The internecine cost would be so large it was not "good for business". Truces - collusion - were concluded.

    A truce, as it were, was concluded with the unwashed masses in the first quarter of the 20th Century, such that even in the pit of the Depression the "understanding" remained in place: These workers are also your customers.

    Reagan got away with breaking the truce because of the development of the Dollar Economy. It became feasible to pound workers - just like the old days - because they could remain your customers via several devices. Women entering the workforce, back end loading of compensation (and if you had to bag out of pension and health commitments, well...), and, most recently, the kiting of debt.

    The kiting of debt really was a way to use the regular schlubs as a means of funneling even more wealth to the top. Witness the world today. Bloomberg Radio says retail is much stronger than forecast this year. But it's stratified - upscale retail is rolling in it; middle class retail is swooning.

    So yes, from a regular people standpoint, inequality is actually the rule, not the exception. Look at the last 500 years in China!

    My point is that a zero sum game winds up being a game of musical chairs. Pretty soon, there's not many chairs for anyone, not just us regular jerks.

  7. Per Lydia's suggestion: As I've said many times, we don't lack for good ideas. Good ideas are with us always. The question is, Will conditions present themselves where such ideas will see the light of day?

    Does anyone really think that such "cascading corporate tax rates" is actually politically doable? Can actually be enacted? Enforced? Collected? Spent properly?

    The game is so rigged at this point that to think any idea will save us that is not deemed to be in the interest of the oligarchs is to engage in wishful thinking.

  8. Oh yeah... And there's this...

  9. And this (sigh)...

    They even use the word "unsustainable" in it...

    And (I hope) the connection between the leveraging of our govt and its policies as part of the great long con and how we are its chumps, and the rise in inequality should be crystal (city) clear...

  10. Forgot the link!

  11. Well, the ironic silver lining about the free market is that political will is not really needed to effect change in the private sector. Business can do the right thing on its own without needing the support of public majority opinion.

    It only takes a few conscientious souls at the top of a decent corporate culture.

    It may not be enough to effect sweeping societal progress, but it can still do a great deal of good. As Gandhi said, "Whatever you do will be insignificant, but it is very important that you do it."

  12. But that's the myth - THERE IS NO FREE MARKET! It is a rigged deal, organized crime. It is the standard case - oligarchs colluding to enhance their position, irrespective of law, ethics, morals or even their own interest with respect to enduring, sustainable prosperity.

    That business COULD do good is yet another one of those good ideas that has a hard time seeing the light of day. The question is, WILL business do good?

    Do they WANT to do good?

    My answer to that is, why not MAKE them want to do good? Why not incentivize them?

    You're not gonna do it with tax policy, since as you yourself observed, they rarely pay taxes.

    They have to become convinced - as their counterparts 100 years ago did - that it is in their interest that the rest of us do well, as well.

  13. Indeed. But how? I am trying to appeal to their reason and conscience.

  14. A lot of thoughtful people - such as the contributors and author of this blog - are indeed trying to appeal to their reason and conscience. It is a laudable thing, something I support.

    However, from a strict "performance is your reality" analysis, it has not been working for the last 30 years, and anyone of an impartial, reflective bent, should be asking, Why not?

    This is a central question that I've been asking myself for the last two decades: Why did this used to work? (Watergate, the end of Vietnam, the Civil Rights movement, Women's rights, etc) Why does it not work now?

    Are our oligarchs less reasonable and/or more amoral now than then? Is it something in the water?

    After much research, reflection and analysis, I happily conclude, no - they have not gotten worse. What has gotten worse are our arrangements.

    The incentives and interests of the oligarchs is now heavily stacked in favor of rewarding bad actions. Whereas previously they were incentivized - it was in their interest, in every way, particularly economically, to "do good", in the last 30 years, these incentives have largely disappeared, making it less in their interest to act in a way that benefits us regular schmucks as well.

    Fine. So we come to your question, "How?"

    Appealing to reason and conscience is not working. Time to try something new.

    You know what I think that is.

    No reason to waste more "space" writing about it!

  15. Fair point Gavino,

    But I'd like some examples of those bygone incentives to do good.


  16. Actually, I see that you have just provided such examples on your comment on Microfinance Morals.