December 21, 2010

Should American Business Protect American Jobs?

This is certainly one of Robert Reich's most revealing posts of late. And it should be cause for national self-reflection. For whom does this nation exist? Right now, things are looking good for American corporations. Not so much for American workers. Here's mostly why:
"As the President recently told a group of CEOs, the choice “is not between Democrats and Republicans. It’s between America and our competitors around the world. We can win the competition.”

There’s only one problem. America’s big businesses are less and less American. They’re going abroad for sales and employees. That’s one reason they’ve showed record-breaking profits in 2010 while creating almost no American jobs.

Consider one of most popular Christmas products of all time – Apple’s iPhone. Researchers from the Asian Development Bank Institute have dissected an iPhone whose wholesale price is around $179.00 to determine where the money actually goes.

Some shows up in Apple’s profits, which are soaring.

About $61 of the $179 price goes to Japanese workers who make key iPhone components, $30 to German workers who supply other pieces, and $23 to South Korean workers who provide still others. Around $6 goes to the Chinese workers who assemble it. Most of the rest goes to workers elsewhere around the globe who make other bits.

Only about $11 of that iPhone goes to American workers, mostly researchers and designers."
"Meanwhile, back home in the U.S., GM has slashed its labor costs. New hires are brought in at roughly half the wages and benefits of former GM employees, under a two-tier wage structure accepted by the United Auto Workers. Almost all GM’s U.S. suppliers have also cut their payrolls."

"Just after the midterm elections, the President’s chief  economic advisor, Larry Summers, told a group of top U.S. CEOs that the election was partly a “rejection of elites…that were seen as more citizens of Davos than of their countries.” American CEOs, Summers warned, should “think very hard about their obligations as citizens of this country.”

Yes, they’re citizens. But first and foremost they’re CEOs. And CEOs have to show profits – wherever those profits come from. Under American-style capitalism, profits matter. Jobs don’t.  

2010 was the year Washington became even more “business friendly.” The result has been more and better jobs – but not in America."
Which is what I've been saying for sometime myself, arguing that it's irrational on Rawlsian social-contract grounds for this nation to be shipping so many of its jobs overseas. But it's not clear what can be done if corporations are unwilling to support regulations that would encourage American companies to keep jobs here. Here's how I conclude the article linked above:
"Capitalism is a particularly demanding social contract that implies a high degree of trust. And so when that trust is broken on a grand scale, in the corporate accounting scandals or late or in the current offshoring race, it compromises the people’s faith in capitalism itself. Therefore, the continuing legitimacy of the U.S. economic system rests to a great extent on its business leaders taking business ethics seriously, indeed perhaps more seriously than their European counterparts. This means getting in the habit of reconsidering policies such as offshoring that tend to contrast, more than reconcile, private interest and public good. At this particular point in time, it means being prepared to challenge prevailing assumptions at the heart of a corporate culture."


  1. I saw this article by Reich. Classic. The ethical choice you pose in terms of national self interest seems perfectly right to me. But are you suggesting that recognizing this argument should be sufficient for businesses to hire local workers, punishing themselves and their own stockholders, against their own self-interest? I don't think so. Instead we ought to expect the State to assert itself and legislate corporate behavior that IS in the national interest, through taxes and duties, for example.

  2. Great point Steve. I am saying both actually. I give examples in the paper as you may recall, such as an offshoring tax, which I point out has been supported by a large majority of technology firms. But such a tax would not likely be sufficient to keep jobs domestic. Lydia's idea of creating tax incentives for companies who keep jobs here is good too. But many of the biggest U.S. companies already have enough loopholes to avoid paying much tax as it is.

    So as Gavino points out, there are plenty of good ideas. The problem is getting them implemented in an atmosphere hostile to regulation. Thus I am arguing, more than anything, that business needs to start supporting, indeed lobbying for regulation to make it easier and more competitive for it to do the arguably right thing here--if you're a contractarian that is. If you're a utilitarian then it's not clear that U.S. firms have a greater duty to create and protect American jobs than they do in any country where they might best perform.

    That said, this will still increase costs across the board and make U.S. firms less competitive internationally. So there's the rub. Still, the government could invest in non-offshorable jobs such as green infrastructure. It could also back out of the World Trade Organization so that it can erect trade barriers such as tariffs on imports. This would slow economic growth, but that may yet be the right thing to do both on this issue as well as for ecological sustainability.

    It could also invest in education. And not merely in math, science and technology, but in the humanities, which hones vision and critical thinking and writing skills. This would make American workers more competitive. U.S. public school education quality has plummeted compared to other developed and developing countries.

    But I also think shareholders have a moral responsibility to look at the longer term and support the ethical mission of a corporation to not merely profit but to do so while creating genuine social value. And this will sometimes require limiting financial returns in the shorter term. Think about it Steve, acting responsibly usually means exercising restraint in one way or another.

  3. My thinking is very similar to Steve's, but I am not informed enough with all the taxes and loopholes to know what the proper solution would be.

    Executives are judged on their ability to make profits for the stakeholders, but there also needs to be pride in creating jobs for Americans while creating great products at competitive prices. I don't think this is too realistic though.

  4. I am relieved to hear that you have come to this point:

    "But it's not clear what can be done if corporations are unwilling to support regulations that would encourage American companies to keep jobs here."

    This is precisely whence I've been cajoling, exhorting, polemicizing, haranguing, and, of course, repeating myself for years.

    The only way American corporations would accept keeping jobs here is if those jobs are EARMARKED for here.

    We do that precisely NOW in the form of the DOD budget (and its related tentacles, including, to a far lesser extent, DHS). The F-35, Tomahawk, Black Hawk and Nimitz-class carriers all HAVE to be built here. The bulk of our armed forces have to be stationed here. It goes on and on...

    THAT'S how we earmark jobs. It's a huge market, that THE GOVT CREATES. It dwarfs everything else we do - healthcare, finance, housing, you name it - in terms of jobs and total (including ancillary) economic activity.

    The big problem, of course, is that it's terminal.

    The big solution is SPACE. It's the only way to migrate any time soon.

    Every economy on earth is subsidized/supported/determined by govt planning of one sort or another, and that includes Japan, Germany, China, Korea, even Mexico and Canada. MITI exists for a reason. Carwashes in China do not.

    We are no different. We subsidize war and plan our economy around it.

    Space is the way out of war and into something that may actually benefit mankind - in the short, medium and long term. It benefits everything - GREEN INCLUDED.

  5. Great point Gavino. I would hope of course that we could do the same with green infrastructure, though that may seem less immediately compatible with the military industry.

  6. Isn't it a pretty fundamental economic truism that protectionism hurts everyone? Americans should be doing stuff that Americans are good at (i.e., that they have a "comparative advantage" at) and let the Chinese do stuff that *they* can do particularly well.

    (Also, politics aside, note that even IF sales of the iPhone help the Chinese more than it helps Americans, that's only a problem if you think that Americans are morally more important than Chinese, right?)

    But really I think the key point here is about the economics of comparative advantage. I would really love for an economist to chime in, here.


  7. Thanks for the comment Chris.

    As I said, yes, this is only a problem if you think American business has a greater moral obligation to American workers (over workers of other countries). Please read my linked journal article "The Utility of Offshoring: A Rawlsian Critique" on this.

    If you are a utilitarian, then this Rawlsian argument won't move you.

    But you might have to admit that it's still irrational for Americans to essentially encourage their own companies to move all jobs they can possibly do more cheaply offshore.

    Protectionism does stifle growth. But economic growth is not the only important value. And it's certainly not ecologically sustainable at this point (or in all likelihood going forward) to have never-ending economic growth.

    You say you wish an economist would chime in here. But Robert Reich is an economist. The point is that the only comparative advantage Americans have now in this flattening globalized world is whatever must be done face to face and whatever is essentially tied to the ground.

    What otherwise offshorable jobs do you suggest Americans are good at doing that the Chinese are not so good at? Design? Management? Entertainment? Please provide examples. I'd love to hear them.

    Even if this is true in some instances, I'm afraid the number of jobs in this category together with those not physically (or safely) offshorable will not provide enough remuneration to maintain, and indeed restore, a robust middle class. Otherwise, as these trends continue, we are looking at a world in which the upper 10% controls 90% of the wealth, and the bottom 70% is a perpetual underclass.

  8. Yes, Reich is an economist, which is why I was disappointed that he didn't really comment on the central economic issue, which is whether there is net benefit or not to Americans.

  9. Well that is in fact his thesis, i.e., that there is not net benefit to Americans:

    There are "two economies," the main one most Americans are struggling in. See my post just before this one for example: