Reports from the Economic Front

a blog by Marty Hart-Landsberg

US Corporations Continue Their Global Dominance

“Make America Great Again,” Donald Trump’s campaign slogan, was cleverly designed to suggest that the nation as a whole has been in decline.  And Trump repeatedly blamed past administrations for this situation, attacking them for pursuing policies that he said left US corporations unable to compete with their foreign rivals to the detriment of US workers.

US workers have indeed experienced a steady deterioration in their working and living conditions.  But Trump’s focus on national decline and call for national revitalization obscures what a class analysis plainly shows: leading US corporations have greatly benefited from past policies and continue to dominate global markets and profit handsomely.  In other words, US workers and US corporations do not share a common interest.  Moreover, Trump administration policies designed to strengthen US corporate competitiveness can be expected to further depress worker well-being.

Globalization Changes Things

We live in a world where economic processes and outcomes are heavily shaped by corporate globalization strategies.  This means that national statistics and measures of economic performance can be misleading.  Sean Starrs, in an essay titled “China’s Rise is Designed in America, Assembled in China,” makes this point by using a global lens to evaluate the relative economic strength of China and the United States.

In the pre-globalization era, a country’s production tended to be nationally rooted.  Thus, for example, Japan’s post World War II rise as a major producer and exporter of cars and consumer electronics meant that Japan’s “rising world share of national accounts [could be considered] synonymous [with] rising national economic power.”  But transnational corporate globalization strategies have dramatically changed things.

Thanks to the expansion of transnational corporate controlled cross-border production networks, the production of many goods and services has been divided into multiple segments, with each segmented located in a different country.  As a result, national economic activity tends to be truncated and less revealing of national value-added than in the past.

These networks are most fully developed in East Asia, and their expansion helped transform China into “the workshop of the world.” China is now the leading producer and exporter, largely to the United States, of such key products as cell phones and laptop computers.  However, in sharp contrast to the Japanese experience, most of the value-added in the production of these high-technology goods is captured by non-Chinese firms.  Thus, Chinese national accounts, especially its trade account, greatly overstate Chinese economic power.  At the same time, US national accounts, including its trade account, greatly overstate the loss of US economic power.

The table below, from Starrs’s article, shows China’s top five exports of manufactures, as well as export values and market share for each product.  It also shows US export values and market shares for the same products.  Finally, it also includes the relative share of global profits from sale of these products earned by Chinese and US corporations.  Starrs used the Forbes Global 2000 list, which ranks the top 2000 corporations in the world using a composite of four indices–assets, market value, profit and sales–and groups them by their appropriate sector of activity, to calculate the profit shares.

As we can see, China was responsible for 38 percent of world exports of telecommunications equipment in 2013, compared with a 7.4 percent share for the United States.  Yet, US firms captured 59 percent of the profit generated by sales of these products; the Chinese share was only 6 percent.  Perhaps even more striking:

There is not a single profitable Chinese firm in textiles that is large enough to make the Forbes Global 2000, despite China’s exports making up 39 percent of the world’s. Exports of clothing from production in the United States is miniscule compared to the rest of the world, at 1.3 percent, yet American firms reap 46 percent of the profit-share — even when the top two firms in the world, Inditex (owner of Zara) and H&M, are both European (Spanish and Swedish, respectively).

The reason for this is simple: Chinese production of the products listed in the table takes place within cross-border production networks largely dominated by US corporations.  US firms are able to monopolize the profits generated by the production and sale of these products thanks to their control over the relevant technologies, product branding, and marketing.

The point then is that in the age of globalization, national accounts are no longer a reliable indicator of national economic strength.

Continued US Global Dominance

A simple look at national accounts does paint a picture of declining US economic power.  For example, the US share of global GDP has slowly but steadily declined.  It was 37 percent in the mid-1960s, 33 percent in the mid-1980s, 27 percent in the mid-2000s, and most recently approximately 22 percent.  The US share of world merchandise exports has also declined.  It averaged approximately 12 percent throughout the 1980s and 1990s and then began rapidly falling.  It was down to 8.5 percent by 2010.

However, Starrs finds that once one takes globalization dynamics into account, US corporations continue to dominate international economic activity.

The table below, again from Starrs’s article, looks at 16 leading sectors and the national profit share for the top 2000 publicly traded global corporations within each sector, for the years 2006, 2010, and 2014.   As we can see, in 2014, the US was the only country with corporations that finished in one of the top three places in all 16 sectors.  US corporations had the largest profit shares in 10 of the 16 sectors, including those at the technological frontier.  They are:

  • Aerospace and defense
  • Chemicals
  • Computer hardware and software
  • Conglomerates
  • Electronics
  • Financial Services
  • Heavy Machinery
  • Oil and Gas
  • Pharmaceuticals and Personal Care
  • Retail

If we define market control as either a 40 percent share of global profits or a profit share more than twice that of the second-place nation, US corporations dominated in 8 of these sectors:

  • Aerospace and defense
  • Chemicals
  • Computer Hardware and Software
  • Conglomerates
  • Financial Services
  • Heavy Machinery
  • Pharmaceuticals and Personal Care
  • Retail

Here are the 6 sectors which were led by a country other than the United States:

  • Auto Trucks and Parts: Japan is first and the US third
  • Banking: China is first and the US second.
  • Construction: China is first and the US tied for second.
  • Forestry, Metals, and Mining: Australia is first and the US third.
  • Real estate: Hong Kong is first and the US third.
  • Telecommunications: the UK is first and the US second.

China is the only country other than the United States that finished first in more than one sector.  But as Starrs points out:

Almost all of these top Chinese firms are state-owned enterprises with heavily protected domestic [markets] with very few operations abroad (with the partial exception of Chinese firms in natural resource extraction). None of these behemoth state-owned enterprises can be characterized as globally competing head-to-head with the world’s top corporations to advance the technological frontier, yet these firms constitute the bulk of the non-foreign ownership of profit from production and investment conducted in China.

And the US is second to China in both sectors.

In short, US corporations remain dominant and highly profitable.  And, US dominance is even greater then these results suggest.  That is because US capital “disproportionately owns not only the economic activity occurring within the territory of the United States, but also around the world.”  Thus, while the US “accounts for only 22 percent of global GDP . . . the proportion of American millionaires and total household wealth is 42 percent and 41 percent respectively [of world totals].”

In sum, it is clear that the US state has done well by leading US firms and their owners.  The problem for us is that the policies that helped produce this outcome—deregulation, liberalization, privatization, and globalization, to list a few—have not benefited US workers, and in most cases workers in other countries as well.  Moreover, sustained US corporate dominance does not guarantee the vitality, or even the stability of the global economy.  Core economies continue to stagnate and there is no reason to think that renewal is on the horizon.  In fact, quite the opposite is true; there are growing signs that the US expansion is near end and that Chinese growth will continue to weaken.

Trump, with his call to “Make American Great Again,” aims to use nationalism to win support for his own efforts to advance US corporate interests. While it remains unclear to what extent his policies will differ from those of past administrations, it is already certain that they will not serve majority interests.  This destructive use of nationalism must be challenged.  The best way is to promote a strategy of resistance that flows from and helps to popularize a grounded class analysis of the workings of our economy.

College Education No Ticket To Financially Rewarding Job

For some time, some in the media have blamed workers themselves for their low and stagnate wages. We now have a technology intensive economy, they said, and to get ahead you need a college education. Well, the trends, as illustrated in the following two charts from the Federal Reserve Bank of New York are clear: college grads are also struggling.

The chart below shows underemployment rates for college graduates with a bachelor degree or higher.  A college graduate is considered underemployed if they work in a job that typically does not require a college degree.  The red line shows the percent of recent college graduates, 22 to 27 years of age, that are underemployed.  The blue line shows the percent of all college graduates, 22 to 65, that are underemployed.

As we can see, approximately 44 percent of all recent college graduates with a bachelor degree or higher are currently working in what the Federal Reserve Bank of New York calls “non-college” jobs.   The same is true for roughly one-third of all college graduates.

While the percentage of underemployed college graduates has largely remained unchanged, the same is not true about earnings trends for college graduates employed in non-college jobs.  The following chart highlights the share of college graduates in what the Federal Reserve Bank of New York calls good non-college jobs–those paying an annual salary of $45,000 or more–and low-wage jobs–those paying an annual salary of $25,000 or less.

As we can see, the percentage of college graduates employed in good non-college jobs has steadily declined since 2001.  For recent college graduates (dark red line), the rate fell from approximately 50 percent down to 35 percent.  The percentage with low-wage jobs rose, over the same period, from roughly 10 percent to 13 percent.

There are many good reasons to pursue a college education.  But there is little evidence that employers are now busily creating jobs that require high skill or that a bachelor’s degree or higher is some automatic ticket to a financially rewarding job.

As shown above, a significant share of college educated workers are unable to find jobs requiring a college education.  And those workers are finding it ever harder to land a “good” non-college job.  The problem is not with US workers—it is with the job creating strategies of most businesses operating in the US.

Even The Good Times of Economic Expansion Aren’t So Good For Most In US

Recessions are bad for most people: production, employment, income all fall.   But economic expansions are supposed to more than compensate for the down times.  However, as we see below, that is no longer the case.

Increasingly, the lion’s share of all the new income generated during economic expansions now goes to a very few.  In other words, a sizeable majority of the US population now loses regardless of the state of the economy.  It is time to shift the focus of our discussions from how best to control the business cycle to how to build a movement strong enough to transform the workings of contemporary capitalism.

Pavline R. Tcherneva has calculated the distribution of new income between the top 10 percent and bottom 90 percent of households and the top 1 percent and bottom 99 percent of households in every post-war US economic expansion.  The following figures come from her Levy Economics Institute of Bard College policy paper titled Inequality Update: Who Gains When Income Grows?

Figure 2 shows a steady rise in the share of income growth claimed by the top 10 percent of households (red bar).  However, as we can see, a striking change takes place with the 1982-90 economic expansion.  Starting with that expansion, the top 10 percent have come to dominate the income gains, leaving little for the bottom 90 percent of households (blue bar).  And as Tchervena comments: “Notably, the entire 2001–7 recovery produced almost no income growth for the bottom 90 percent of households.”  So much for the pre-Great Recession debt-driven golden years.

Figure 4 illustrates the distribution of income gains between the top 1 percent of households and the bottom 99 percent of households.  As we can see, the top 1 percent of households now capture a greater share of newly created income than the bottom 99 percent of US households.  It is no exaggeration to say that our economy now largely works only for the benefit of those few families.

Tcherneva sums up her work well:

the growth pattern that emerged in the ’80s and delivered increasing income inequality is alive and well. The rising tide no longer lifts most boats. Instead, the majority of gains go to a very small segment of the population. As I have discussed elsewhere, this growth pattern is neither accidental nor unavoidable. It is largely a by-product of policy design, specifically, the shift in macroeconomic methods used to stabilize an unstable economy and stimulate economic growth.

President Trump’s Hollow Job Promises

President Trump’s election success rested to a considerable degree on his pre-election attack on globalization and verbal pledge to bring manufacturing jobs back to the United States. However, as I argued in a previous post, there is no reason to believe that President Trump is serious about wanting to restrict corporate mobility or fashion new, more domestically-centered, worker-friendly trade relations.

In fact, several of his appointees to key economic policy positions are people whose past work was promoting the very globalization he criticized.

Still, there are some in the labor and progressive communities who continue to hold out hope that they can find common ground with the Trump administration on trade.  Unfortunately, it appears that these people are ignoring what we do know about the nature of existing manufacturing jobs in the globalized industries that President Trump claims he will target for restructuring.  Sadly, the experience of workers in many of those jobs reveals the hollowness of Trump’s promises to working people.

The Southern Strategy of the Automobile Industry

The automobile industry, one of the most globalized of US manufacturing industries, offers a powerful example of the dangers of thinking simply about employment numbers. As an Economic Policy Institute report describes:

Political and market pressure on Japanese and European (and later, Korean) manufacturers to reduce imports to the United States has led to a rising number of “transplants” supplying auto components and assembling autos.

Initially, the transplants operated in the Midwest, including assembly plants in Illinois (Mitsubishi), Michigan (Mazda), Ohio (Honda), and Pennsylvania (Volkswagen), along with California (Toyota’s joint venture with General Motors, now a Tesla facility). More recently, however, the growth has been in Southern states, including assembly plants in Alabama (Honda, Hyundai, and Mercedes-Benz), Georgia (Kia), Kentucky (Toyota), Mississippi (Nissan and Toyota), South Carolina (BMW and Mercedes-Benz), Tennessee (Nissan and Volkswagen), and Texas (Toyota).

As a result of these trends, the weight of motor vehicle manufacturing employment (including parts suppliers) in the United States has shifted from the Midwest to the South.  And what kind of jobs has this investment brought?  The title of a Bloomberg Businessweek article – Inside Alabama’s Auto Jobs Boom: Cheap Wages, Little Training, Crushed Limbs – sums it up all too well.

As the article explains:

Alabama has been trying on the nickname “New Detroit.” Its burgeoning auto parts industry employs 26,000 workers, who last year earned $1.3 billion in wages. Georgia and Mississippi have similar, though smaller, auto parts sectors. This factory growth, after the long, painful demise of the region’s textile industry, would seem to be just the kind of manufacturing renaissance President Donald Trump and his supporters are looking for.

Except that it also epitomizes the global economy’s race to the bottom. Parts suppliers in the American South compete for low-margin orders against suppliers in Mexico and Asia. They promise delivery schedules they can’t possibly meet and face ruinous penalties if they fall short. Employees work ungodly hours, six or seven days a week, for months on end. Pay is low, turnover is high, training is scant, and safety is an afterthought, usually after someone is badly hurt. Many of the same woes that typify work conditions at contract manufacturers across Asia now bedevil parts plants in the South.

“The supply chain isn’t going just to Bangladesh. It’s going to Alabama and Georgia,” says David Michaels, who ran OSHA for the last seven years of the Obama administration. Safety at the Southern car factories themselves is generally good, he says. The situation is much worse at parts suppliers, where workers earn about 70¢ for every dollar earned by auto parts workers in Michigan, according to the Bureau of Labor Statistics. (Many plants in the North are unionized; only a few are in the South.)

In 2014, OSHA’s Atlanta office, after detecting a high number of safety violations at the region’s parts suppliers, launched a crackdown. The agency cited one year, 2010, when workers in Alabama parts plants had a 50 percent higher rate of illness and injury than the U.S. auto parts industry as a whole. That gap has narrowed, but the incidence of traumatic injuries in Alabama’s auto parts plants remains 9 percent higher than in Michigan’s and 8 percent higher than in Ohio’s. In 2015 the chances of losing a finger or limb in an Alabama parts factory was double the amputation risk nationally for the industry, 65 percent higher than in Michigan and 33 percent above the rate in Ohio.

The article provides several stories of low paid workers forced to work in unsafe conditions who suffered devastating injuries.  “OSHA records obtained by Bloomberg document burning flesh, crushed limbs, dismembered body parts, and a flailing fall into a vat of acid. The files read like Upton Sinclair, or even Dickens.”

The Story of Reco Allen

Here is one story from the article: in 2013 Reco Allen, a 35 year old father of three, with a wife working at Walmart, took at $9 an hour job with Surge Staffing, a temp agency that provides workers to Matsu Alabama, a Honda parts supplier.  Allen sought and was given a janitorial position at Matsu.  But after six weeks on the job, he was pressured by a supervisor to finish his shift by working on a metal-stamping press.  Matsu was in danger of not meeting its parts quota and the company “could have been fined $20,000 by Honda for every minute its shortfall held up the company’s assembly line.”

Allen received no training on operating the machine.  Moreover, there were known problems with the vertical safety beam that was supposed to keep the machine from operating if a worker was in danger of being caught in the stamping process.  Tragically, Allen’s arm was indeed caught by the die that stamped the metal parts.  As Businessweek reports:

He stood there for an hour, his flesh burning inside the heated press. Someone brought a fan to cool him off. . . . When emergency crews finally freed him, his left hand was “flat like a pancake,” Allen says, and parts of three fingers were gone. His right hand was severed at the wrist, attached to his arm by a piece of skin. A paramedic cradled the gloved hand at Allen’s side all the way to the hospital. Surgeons removed it that morning and amputated the rest of his right forearm to avert gangrene several weeks later.

The company had been told by the plant’s safety committee several times that the machine needed horizontal as well as vertical safety beams. In fact, one year before Allen’s accident, another worker suffered a crushed hand on the same machine.  Moreover, the company’s treatment of Allen was far from unusual.  Matsu “provided no hands-on training, routinely ordered untrained temps to operate machines, sped up presses beyond manufacturers’ specifications, and allowed oil to leak onto the floor.”

And what happened to the company?  They received a $103,000 fine from an Occupational Safety and Health Review Commission.

The Businessweek article includes several other stories of workers maimed because of unsafe work conditions at firms with long histories of safety violations.  And they all ended in much the same way: with corporations paying minimal fines.  And, apparently with little change in corporate behavior.

Known Knowns

We know that most employers will push production as hard as they can to cut costs, with little regard for worker safety.  We also know that union jobs are better than non-union jobs in terms of wages and benefits, and safety.

We also know that President Trump is taking steps to weaken labor laws and unions, as well as gut federal and state agencies charged with protecting worker health and safety and the environment.

Thus, even if President Trump does succeed in enticing some globalized corporations to shift parts of their respective production networks back to the US, the experience of the auto industry demonstrates that the resulting job creation is unlikely to satisfy worker demands for safe, living wage jobs.

In sum, no matter the campaign rhetoric, and no matter the twists and turns in policy, it should be clear to all that President Trump is committed to an anti-worker agenda.

Fake or Not, The News is Mostly Corporate Controlled

From the Transnational Institute:

 

See the complete infographic to learn more about the leading media, thinktanks, and corporations that seek to shape our thinking.

Trump’s “Skinny Budget” Has A Lot Of Military

President Trump released what is called a “skinny budget.”   It may contain far less information then the skinny budgets released by the five previous administrations, but its aim is crystal clear: more money for militarism, less money for pretty much everything else.

As the Center on Budget and Policy Priorities explains:

The Trump budget includes only estimates for fiscal 2018 and only for its proposed changes to discretionary programs (those funded through the annual appropriations process) — even though discretionary programs make up less than one-third of the federal budget.  The Trump budget omits any figures on entitlement or mandatory spending (e.g., Social Security, Medicare, Medicaid, federal retirement, or SNAP), interest payments, revenues, or deficits.

The following table shows the Trump administration’s proposed changes in discretionary program spending for fiscal year 2018 (which begins in October 2017).

The budget calls for a continuation of Obama administration cuts in overall discretionary spending—a 1.2 percent decline in real dollars for fiscal year 2018.  The figure below highlights the trend. 

In many cases, the proposed cuts to nonmilitary programs appear designed to dismantle key government agencies and programs.  A few examples:

The Environmental Protection Agency would take the biggest hit, with a proposed 31 percent cut to its budget. This would give the agency its smallest budget since it was formed in 1970.  Angela Chen and Alessandra Potenza, writing in the Verge, highlight what is at stake:

Through legislation like the Clean Air Act and the Clean Water Act, the EPA has ensured that Americans live in a relatively healthy environment. Thanks to the EPA’s work, from 1970 to 2015, national emissions of pollutants like lead, carbon monoxide, and nitrogen dioxide have declined by an average of 70 percent. These and more changes meant 160,000 people in the US didn’t die prematurely due to air pollution in 2010 alone. Since the 1980s, the EPA has also worked with local authorities to clean up some of the most polluted sites in the US, from landfills that caught fire to radioactive waste housed close to residential areas.

The proposed Department of Health and Human Services budget would, in real terms, be rolled back 18 years, to its 2000 spending level. The Department, as Chen and Potenza describe:

oversees several major agencies, including the Food and Drug Administration, the National Institutes of Health, the Centers for Disease Control and Prevention, the Substance Abuse and Mental Health Services Administration, and the Office for Civil Rights. . . .These agencies make sure our drugs are safeprovide funding for medical research, lead the way during public health outbreaks such as the ebola scare, and provide services to those struggling with drug addiction. . . .Half of the most transformative drugs of the last 25 years were made possible because of publicly funded research, according to a 2015 study.

The proposed budget for the Education Department would be its lowest in 17 years.

The discretionary part of the Department of Agriculture budget would be slashed to its lowest level since the 1970s.

Transportation would have its lowest real budget in 18 years.

Labor’s budget would be rolled back to levels last seen in the 1970s.

And then there is Defense and Homeland Security, both of which enjoy substantial real increases.  This despite the fact that the Defense Department cannot even account for how it spends its money.  As Reuters reports:

The United States Army’s finances are so jumbled it had to make trillions of dollars of improper accounting adjustments to create an illusion that its books are balanced.

The Defense Department’s Inspector General, in a June [2016] report, said the Army made $2.8 trillion in wrongful adjustments to accounting entries in one quarter alone in 2015, and $6.5 trillion for the year. Yet the Army lacked receipts and invoices to support those numbers or simply made them up.

As a result, the Army’s financial statements for 2015 were “materially misstated,” the report concluded. The “forced” adjustments rendered the statements useless because “DoD and Army managers could not rely on the data in their accounting systems when making management and resource decisions.”

Disclosure of the Army’s manipulation of numbers is the latest example of the severe accounting problems plaguing the Defense Department for decades.

The report affirms a 2013 Reuters series revealing how the Defense Department falsified accounting on a large scale as it scrambled to close its books. As a result, there has been no way to know how the Defense Department – far and away the biggest chunk of Congress’ annual budget – spends the public’s money.

The new report focused on the Army’s General Fund, the bigger of its two main accounts, with assets of $282.6 billion in 2015. The Army lost or didn’t keep required data, and much of the data it had was inaccurate, the IG said.

None of this matters, of course, to those powerful political and economic forces that are determined to push the militarization of the country.

Whether this skinny budget turns out to be a trial balloon, a way for the Trump administration to gauge how far it can go, followed by modest adjustments if it meets strong resistance, remains to be seen.  Regardless, it is critical that we begin now to engage in serious coalition building involving those communities that rely on public services and the public sector workers, at all levels of government, that deliver those services, to shape and advance a powerful and positive vision of the public sector we want and need.  Otherwise, we face a future of ever worsening tradeoffs, with profit-driven corporations steadily moving into the vacuum created by cuts in public programs to increase their control over all facets of our lives.

Monopolization and Labor Exploitation

Those who advocate “freeing the market” claim that doing so will encourage competition and thereby increase majority well-being.  These advocates have certainly had their way shaping economic policies.  And the results?  According to several leading economists, the results include the growing monopolization of product markets and steady decline in labor’s share of national income.  Neither outcome desirable.

The economists—David Autor, David Dorn, Lawrence F. Katz, Christina Patterson, and John Van Reenen—did not actually seek to examine the consequences of decades of neoliberal economic policies.  Rather they sought to understand why “there has been a decline in the U.S. labor share since the 1980s particularly in the 2000s.”  (See the figure below.)

What they found was evidence that sales have become increasingly concentrated in a small number of firms across many industries.  And, that “those industries where concentration rises the most have the sharpest falls in the labor share.”  Thus, “the [overall] fall in the labor share is mainly due to a reallocation of labor towards firms with lower (and declining) labor shares, rather than due to declining labor shares within most firms.”

The growing monopolization of the US economy

The authors calculated sales concentration in six large sectors—manufacturing, retail trade, wholesale trade, services, finance, and utilities and transportation—for the years 1982 to 2012.  They used two different measures of sales concentration: the fraction of sales in an “average industry” accounted for by its four largest firms (CR4 with Sales) and by its twenty largest firms (CR20 with Sales).  The results are illustrated in the figure below.

As the authors explain:

There is a remarkably consistent upward trend in concentration in each sector. In manufacturing, the sales concentration ratio among the top 4 increases from 38% to 43%; in finance, it rises from 24% to 35%; in services from 11% to 15%; in utilities from 29% to 37%; in retail trade from 15% to 30% and in wholesale trade from 22% to 28%. Over the same period, there were similar or larger increases in CR20 for sales.

The authors explain this growth in concentration by the rise of so-called “superstar” firms. These firms are characterized by rapid productivity growth and their dominance comes from the ways in which technological change has made most markets “winner take most.”  In other words, innovative firms are able to quickly assert market dominance thanks to “the diffusion of new competitive platforms (e.g. easier price/quality comparisons on the Internet), the proliferation of information-intensive goods that have high fixed and low-marginal costs (e.g., software platforms and online services), or increasing competition due to the rising international integration of product markets.”  And thanks to first mover advantages, this success builds upon itself, allowing superstar firms to further strengthening their market position.

Whatever the reason, clearly “market competition” has strengthened monopoly power, especially in manufacturing, finance, utilities, and retail trade, all sectors where the top four firms now account for at least 30 percent of average industry sales.

Labor’s declining share of national income

It is the rise of these superstar firms, according to the authors, that best explains the decline in labor’s share of national income.  They test and reject several other explanations.  For example, some economists argue that international trade is key.  But the authors point out that it is not just import-competing industries in which labor’s share is falling; it is also falling in non-traded sectors like retail trade, wholesale trade, and utilities.

Other economists point to the decline in capital costs, which they believe has encouraged firms to increase spending on capital goods, leading to falling labor shares in all industries.  But the authors find no support for this.  In fact, they find that “the unweighted mean labor share across firms has not increased much since 1982. Thus, the average firm shows little decline in its labor share.”

All of this points to the growth of superstar firms as the key to explaining labor’s declining share of national income.  According to the authors, superstar firms have a lower labor share than do most other firms.  One reason is that these firms tend to enjoy significant markup pricing power which allows them to boost their profits without adding labor.  Another is that they also tend to enjoy great economies of scale; with a relatively fixed amount of overhead labor, they are able to boost production without a commensurate increase in employment.

The authors calculated concentration measures for employment (CR4 with Employment, CR20 with Employment) much as they did for sales; see above figure.  As they note:

Again, we observe a rising concentration in all six sectors for 1982 to 2012, although employment concentration has grown notably more slowly than sales concentration in finance, services, and especially in manufacturing. The pattern suggests that firms may attain large market shares with a relatively small workforce, as exemplified by Facebook and Google.

And as these firms increase their market dominance, labor’s overall share tends to fall.  As the authors explain: “those industries where concentration rises the most have the sharpest falls in the labor share . . . [Thus] the fall in the labor share is mainly due to a reallocation of labor towards firms with lower (and declining) labor shares, rather than due to declining labor shares within most firms.”  In fact, the strength of this negative relationship between market concentration and labor’s share grew stronger over the period of study.

A look behind the curtain

These results are important, suggesting that capitalism’s motion itself is driving labor’s declining share.  However, I think that there is good reason to believe that the underlying dynamics at work are different from those highlighted above.  To state it bluntly, superstar firms are driving down labor’s share because they are increasingly using strategies of profit maximization that have them replace direct labor with contract labor, franchising, and supply chains.

Over most of the post-war period, until the late 1970s, large corporations tended to directly employ the workers needed to produce the goods or services they sold.  But starting in the 1980s, and especially in the 2000s, these firms began actively shedding employees and hiring smaller firms to carry out the tasks that were once done in-house.  This enabled these lead corporations to greatly expand production and boost profits with a minimal increase in direct employment.

David Weil calls this strategy “fissuring the workplace” and his book, The Fissured Workplace Why Work Became So Bad for So Many and What Can Be Done to Improve It, documents how this has become the preferred strategy of most of our major companies.  Here, from Weil’s book, are three examples of fissured workplaces:

A maid works at the San Francisco Marriott on Fisherman’s Wharf. The hotel property is owned by Host Hotels and Resorts Inc., a lodging real estate company. The maid, however, is evaluated and supervised daily and her hours and payroll managed by Crestline Hotels and Resorts Inc., a national third- party hotel management company. Yet she follows daily procedures (and risks losing her job for failure to accomplish them) regarding cleaning, room set- up, overall pace, and quality standards established by Marriott, whose name the property bears.

A cable installer in Dayton, Ohio, works as an independent contractor (in essence a self-employed business provider), paid on a job-by-job basis by Cascom Inc., a cable installation company. Cascom’s primary client is the international media giant Time Warner, which owns cable systems across the United States. The cable installer is paid solely on the basis of the job completed and is entitled to no protections normally afforded employees. Yet all installation contracts are supplied solely by Cascom, which also sets the price for jobs and collects payment for them. The installer must wear a shirt with the Cascom logo and can be removed as a contractor at will for not meeting minimum quotas or quality standards, or at the will of the company.

A member of a loading dock crew working in Southern California is paid by Premier Warehousing Ventures LLC (PWV)— a company providing temporary workers to other businesses— based on the total time it takes him and members of his crew to load a truck. PWV, in turn, is compensated for the number of trucks loaded by Schneider Logistics, a national logistics and trucking company that manages distribution centers for Walmart. Walmart sets the price, time requirements, and performance standards that are followed by Schneider. Schneider, in turn, structures its contracts with PWV and other labor brokers it uses to provide workers based on those prices and standards and its own profit objectives.

At one time, large corporations like Marriott, Time Warner, and Walmart directly employed the workers that labored on their behalf.  But no more.  Now, these large corporations are able to escape paying many of those who “work for them” the wages and benefits offered to their other employees.  Instead, their salaries are paid by other smaller firms, whether they be independent businesses, temporary work agencies, or franchise owners, or in more extreme cases so-called independent contractors.  And because these second-tier businesses operate in highly competitive markets, with substantially lower profit margins than the lead corporations they service, these workers now receive far lower salaries with few if any benefits and protections.

As Weil summarizes:

This [business strategy] creates downward pressure on wages and benefits, murkiness about who bears responsibility for work conditions, and increased likelihood that basic labor standards will be violated. In many cases, fissuring leads simultaneously to a rise in profitability for the lead companies who operate at the top of industries and increasingly precarious working conditions for workers at lower levels.

This strategy is the domestic counterpoint to the globalization strategies of the large multinationals like Dell Computers and Apple.  And it has come to dominate and structure US labor markets.  As the Wall Street Journal explains:

Never before have American companies tried so hard to employ so few people. The outsourcing wave that moved apparel-making jobs to China and call-center operations to India is now just as likely to happen inside companies across the U.S. and in almost every industry. . . .

The contractor model is so prevalent that Google parent Alphabet Inc., ranked by Fortune magazine as the best place to work for seven of the past 10 years, has roughly equal numbers of outsourced workers and full-time employees, according to people familiar with the matter.

About 70,000 TVCs—an abbreviation for temps, vendors and contractors—test drive Google’s self-driving cars, review legal documents, make products easier and better to use, manage marketing and data projects, and do many other jobs. They wear red badges at work, while regular Alphabet employees wear white ones. . . .

Companies, which disclose few details about their outside workers, are rapidly increasing the numbers and types of jobs seen as ripe for contracting. At large firms, 20% to 50% of the total workforce often is outsourced, according to staffing executives. Bank of America Corp. ,Verizon Communications Inc., Procter & Gamble Co. and FedEx Corp. have thousands of contractors each. . . .

Janitorial work and cafeteria services disappeared from most company payrolls long ago. A similar shift is under way for higher-paying, white-collar jobs such as research scientist, recruiter, operations manager and loan underwriter.

Two labor economists, Lawrence F. Katz and Alan B. Krueger, recently published a study of the rise of so-called alternative work arrangements, which they “defined as temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers.”

They found that the percentage of US workers with alternative work arrangements rose from 10.1 percent [of all employed workers] in February 2005 to 15.8 percent in late 2015. (See the figure below).

That is a huge jump, especially since the percentage of workers with alternative work arrangements barely budged over the period February 1995 to February 2005; it was only 9.3 in 1995.  But their most startling finding is that “all of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements.”

Looking behind the curtain shows that the decline in labor’s share is the result of a brutal process of work restructuring that affects a rapidly growing percentage of US workers.  Reversing the decline will require both a broader awareness of the negative social consequences of the private pursuit of profit and a far stronger labor movement than we have today.

Prepare For The Coming Attack On Social Security

Powerful financial interests want you to believe that Social Security is a broken, bankrupt system.  Don’t believe them—it’s not true.

They don’t care that Social Security is an incredibly popular program that has, for decades, successfully provided a reliable income floor for seniors.  Their ultimate goal is to privatize the system, transforming the more than $2.8 trillion dollars in interest-earning, non-tradeable US government bonds that are currently held in the Social Security Trust Fund into a pool of investment funds they can profitably manage and invest in the stock market.

Candidate Trump said he would defend Social Security.  But his appointments suggest otherwise.  A case in point: his selection of South Carolina Congressman John Mulvaney to run the Office of Management and Budget.  Mulvaney made clear during his confirmation hearing that cutting Social Security was one of his priorities.  The Republican Party leadership has long been on record in favor of gutting Social Security, a first step towards its privatization.   Now that the Republicans control both the Senate and House, as well as the Presidency, it takes no stretch of the imagination to believe that Social Security is in danger.

Sadly, it is an open question how much we can rely on the Democratic Party leadership to defend the system.  Presidents Clinton and Obama both embraced the idea that Social Security was a broken system that needed radical change, one option being its privatization.

In short, it is going to be up to us to defend, if not expand, the system.

Social Security Basics  

In broad brush, the Social Security system works as follows: workers and their employers make yearly payments into the Social Security system.  Workers pay 6.2 percent of their wage and salary earnings, up to a cap which rises each year based on the movement in average wages.  The 2016 cap was $127,200.  Their employers pay a matching amount.  The self-employed pay both shares, for a total of 12.4 percent. Social Security beneficiaries receive inflation-adjusted monthly payments based on a formula tied to their lifetime earnings, years of work, date of birth, and age at retirement.

From 1983 to the present, payments into the Social Security system have been greater than payouts to retirees.  By law, the surplus was invested in interest-earning, non-tradeable, US government bonds and held in the Social Security Trust Fund.  The combination of yearly surpluses and interest earnings produced the trust fund surplus of roughly $2.8 trillion.

Every year the Social Security Board of Trustees issues an annual report on the financial health of the system.  The report includes future projections of the earnings and expenditures over a 75 year period.  Three different outcomes, based on different assumptions about the likely movements in key economic variables, are highlighted.  The intermediate outcome is the one commonly used for assessment of the stability of the system.

Since 2010, worker and employer yearly contributions into the system have been too small to cover payments to beneficiaries; the gap has been covered by using some of the interest earned from the system’s bond holdings.  Still, up to now, the interest earnings have been large enough that their reinvestment has enabled the Trust Fund to keep growing.  However, the Trustees project that beginning in 2020, the system’s non-interest deficit will grow so large that interest earnings will be insufficient to fill the gap. Bonds will have to be sold to meet beneficiary obligations.  Finally, they believe that in 2034 the Trust Fund will be depleted, making it impossible to fully pay scheduled benefits.

It is on this basis, that important political players from both Republican and Democratic parties, representing powerful financial interests, declare the system in crisis and call for its radical transformation.

The Trumped-Up Crisis

There are many reasons to reject this declaration of crisis.  First, the conclusion depends heavily on the assumptions used in the projections of the economy’s movement over the next 75 years.  These assumptions are vetted by the system’s trustees.  There are supposed to be six Trustees.  Four hold positions in the federal government: the Secretary of the Treasury, the Secretary of Labor, the Secretary of Health and Human Services, and the Commissioner of Social Security. The other two are “public representatives” appointed by the President, subject to confirmation by the Senate.  The two Public Trustee positions are currently vacant.  Significantly, all the trustees are political appointees.

A slight change in assumptions can dramatically change the outcome.  For example, the report assumes, for the intermediate forecast, an annual productivity rate of 1.68 percent.  Is that reasonable? For the 41-year period from 1966 to 2007, the annual increase in total-economy productivity averaged 1.73 percent.  From 1995 to 2010 productivity grew by a yearly average of 2.18 percent.  The lower the assumed rate of productivity the more likely the system is to run short of funds; assume a higher rate and the crisis disappears.  The same question can be asked with regard to the assumptions made about immigration and wage increases.

Successive administrations, Republican and Democratic, have talked about the necessity of weakening or actually privatizing Social Security.  One has to wonder about the forecasting assumptions chosen by their appointed trustees.

The role of assumptions also figures prominently when examining the arguments commonly made by advocates for privatizing the Social Security system.  These people almost always point to the historical performance of the stock market to argue that returns would be higher and thus the system more secure if the system were privatized.  But there is a slight of hand here—the conclusion that the Social Security system will fail is based on a future projection of relatively slow growth.  An honest comparison would involve projecting the future earnings of the stock market using the same relatively gloomy assumptions.

However, that is not what is done.  Rather, we are asked to accept the historical performance of the stock market as a reference point for its likely 75 year future performance–an assumption that strongly biases the comparison in favor of privatization.  And, of course, this comparison ignores the considerable fluctuations in stock market performance; a worker who retires during a market slump could be left with little in retirement support.

Another reason to reject the crisis story:  even if we assume that the Trustee’s forecasts are accurate, it is not true that the system would be bankrupt in 2034, leaving retirees penniless.  Funds would still be contributed after all.  As a Newsweek article points out:

The Social Security Trustees estimate that in 2034, there will be enough revenue from payroll taxes and other sources to pay 79 percent of projected benefit obligations based on current law. Granted, a one-fifth cut in benefits will be painful for many Social Security recipients, but it won’t be the catastrophic disappearance of monthly checks.

Moreover, it is not difficult to dramatically reduce, if not eliminate this shortfall.  As noted above, wage and salary income is taxed up to a cap, which in 2016 was $127,200.  That cap means that income earned from work above that level is not subject to social security taxes. [Investment income is never subject to social security taxes.]  The use of a cap means that Social Security’s financial health has been negatively affected by the explosion of income inequality.  As Dean Baker wrote in 2013:

In 1983, the Greenspan commission set the cap at a level where 90 percent of wage income would be subject to the tax, meaning that 10 percent would escape taxation.

Since that date, the upward redistribution of wages has increased the portion of wage income over the cap to 16.8 percent, with just 83.2 percent of wage income subject to the cap. The share going over the wage cap is projected to rise further, reaching 17.5 percent of wage income in a decade. In this way, the upward redistribution of income directly worsens the finances of the program. . . .

The chart below shows the path of Social Security revenue and spending if there had been no upward redistribution of income over the last three decades. In 2012, if 90 percent of wage income has been subject to the tax then the system would have raised another $58.1 billion in taxes. It would have paid out an additional $15.7 billion in benefits for a net increase in revenue of $42.4 billion, before counting the additional interest.

number-1

If we imagine keeping the cap adjusted to maintain the 90 percent path and include the interest earnings on the newly generated surplus, the projected social security shortfall comes close to vanishing.  A recent proposal calls for applying the social security tax on incomes over $250,000.  As we see below, only 5.8 percent of workers have incomes above the payroll tax cap and only 1.6 percent have incomes above $250,000.  As Alan Barber and Cherrie Bucknor report, “According to an analysis from the Social Security office of the Chief Actuary, this [policy of imposing the social security tax on incomes over $250,000] would have eliminated 80 percent of the projected Trust Fund shortfall.”  Another proposal calls for limiting the tax to the 0.7 percent of workers whose incomes are above $400,000.

number-2

If we were to make all wages subject to the tax, then even under the assumptions used by the Social Security Administration, the system would remain solvent until the year 2067, at which point there would be a 14 percent shortfall in mandated benefits.

The Importance of Social Security

Millions of people count on Social Security.  In fact, over 60 percent of seniors, more than 24 million people, rely on Social Security for at least half their income.  “This includes 53% of married couples and 74% of single beneficiaries. What’s more, 33% of Social Security beneficiaries rely on Social Security for nearly at least 90% of their income.”

It is also an incredibly popular program.  A strong majority support doing whatever it takes to ensure its future.  As Matthew Frankel explains:

According to a survey by the National Academy of Social Insurance, 85% of Americans agree with the statement “Social Security benefits now are more important than ever to ensure that retirees have a dependable income.” This percentage included a majority of all political affiliations, income levels, and age groups.

Additionally, 81% say they don’t mind paying Social Security taxes because of the stability it provides to millions of retirees. And 72% say that we should consider increasing Social Security benefits — including 65% of Republicans, 61% of high-income individuals, and at least 65% of every age group.

So it’s fair to say the consensus is that Social Security is worth preserving.

In short, Social Security is not in crisis.  It is a strong program and, if necessary, simple reforms can ensure its continuing smooth operation.  What does need our attention is the broader workings of our economy.  Among the most pressing issues is the disappearance of secure, well-paying jobs.  In fact, a growing number of analysts worry that the labor market has become so bad for workers that we may be facing the end of retirement; low pay and the lack of benefits will force people to work until they literally drop.  That we have come to this point is a real crisis.

 

Trump’s Economic Policies Are No Answer To Our Problems

President Trump has singled out unfair international trading relationships as a major cause of US worker hardship.  And he has promised to take decisive action to change those relationships by pressuring foreign governments to rework their trade agreements with the US and change their economic policies.

While international economic dynamics have indeed worked to the disadvantage of many US workers, Trump’s framing of the problem is highly misleading and his promised responses are unlikely to do much, if anything, to improve majority working and living conditions.

President Trump and his main advisers have aimed their strongest words at Mexico and China, pointing out that the US runs large trade deficits with each, leading to job losses in the US.  For example, Bloomberg News reports that Peter Navarro, the head of President Trump’s newly formed White House National Trade Council “has blamed Nafta and China’s 2001 entry into the World Trade Organization for much, if not all, of a 15-year economic slowdown in the U.S.” In other words, poor negotiating skills on the part of past US administrations has allowed Mexico and China, and their workers, to gain at the expense of the US economy and its workers.

However, this nation-state framing of the origins of contemporary US economic problems is seriously flawed. It also serves to direct attention away from the root cause of those problems: the profit-maximizing strategies of large, especially US, multinational corporations.  It is the power of these corporations that must be confronted if current trends are to be reversed.

Capitalist Globalization Dynamics

Beginning in the late 1980s large multinational corporations, including those headquartered in the US, began a concerted effort to reverse declining profits by establishing cross border production networks (or global value chains).  This process knitted together highly segmented economic processes across national borders in ways that allowed these corporations to lower their labor costs as well as reduce their tax and regulatory obligations.   Their globalization strategy succeeded; corporate profits soared.  It is also no longer helpful to think about international trade in simple nation-state terms.

As the United Nations Conference on Trade and Development explains:

Global trade and foreign direct investment have grown exponentially over the last decade as firms expanded international production networks, trading inputs and outputs between affiliates and partners in GVCs [Global Value Chains].

About 60 per cent of global trade, which today amounts to more than $20 trillion, consists of trade in intermediate goods and services that are incorporated at various stages in the production process of goods and services for final consumption. The fragmentation of production processes and the international dispersion of tasks and activities within them have led to the emergence of borderless production systems – which may be sequential chains or complex networks and which may be global, regional or span only two countries.

UNCTAD estimates (see the figure below) that some 80 percent of world trade “is linked to the international production networks of TNCs [transnational corporations], either as intra-firm trade, through NEMs [non-equity mechanisms of control] (which include, among others, contract manufacturing, licensing, and franchising), or through arm’s-length transactions involving at least one TNC.”

tnc-involvement

In other words, multinational corporations have connected and reshaped national economies along lines that best maximize their profit.  And that includes the US economy.  As we see in the figure below, taken from an article by Adam Hersh and Ethan Gurwitz, the share of all US merchandise imports that are intra-firm, meaning are sold by one unit of a multinational corporation to another unit of the same multinational, has slowly but steadily increased, reaching 50 percent in 2013.  The percentage is considerably higher for imports of manufactures, including in key sectors like electrical, machinery, transportation, and chemicals.

onea

The percentage is lower, but still significant for US exports.  As we see in the following figure, approximately one-third of all merchandise exports from the US are sold by one unit of a multinational corporation to another unit of the same company.

oneb

The percentage of intra-firm trade is far higher for services, as illustrated in the next figure.

services

As Hersh and Gurwitz comment,

The trend is clear: As offshoring practices increase, companies need to provide more wraparound services—the things needed to run a businesses besides direct production—to their offshore production and research and development activities. Rather than indicating the competitive strength of U.S. services businesses to expand abroad, the growth in services exports follows the pervasive offshoring of manufacturing and commercial research activities.

Thus, there is no simple way to change US trade patterns, and by extension domestic economic processes, without directly challenging the profit maximizing strategies of leading multinational corporations.  To demonstrate why this understanding is a direct challenge to President Trump’s claims that political pressure on major trading partners, especially Mexico and China, can succeed in boosting the fortunes of US workers, we look next at the forces shaping US trade relationships with these two countries.

The US-Mexican Trade Relationship

US corporations, taking advantage of NAFTA and the Mexican peso crisis that followed in 1994-95, poured billions of dollars into the country (see the figure below).  Their investment helped to dramatically expand a foreign-dominated export sector aimed at the US market that functions as part of a North American region-wide production system and operates independent of the stagnating domestic Mexican economy.

fdi-mexico

Some 80 percent of Mexico’s exports are sold to the US and the country runs a significant merchandise trade surplus with the US, as shown in the figure below.

trade-mexico

Leading Mexican exports to the US include motor vehicles, motor vehicle parts, computer equipment, audio and video equipment, communications equipment, and oil and gas.  However, with the exception of oil and gas, these are far from truly “Mexican” exports.  As a report from the US Congressional Research Service describes:

A significant portion of merchandise trade between the United States and Mexico occurs in the context of production sharing as manufacturers in each country work together to create goods. Trade expansion has resulted in the creation of vertical supply relationships, especially along the U.S.-Mexico border. The flow of intermediate inputs produced in the United States and exported to Mexico and the return flow of finished products greatly increased the importance of the U.S.- Mexico border region as a production site. U.S. manufacturing industries, including automotive, electronics, appliances, and machinery, all rely on the assistance of Mexican [based] manufacturers. One report estimates that 40% of the content of U.S. imports of goods from Mexico consists of U.S. value added content.

Because foreign multinationals, many of which are US owned, produce most of Mexico’s exports of “advanced” manufactures using imported components, the country’s post-Nafta export expansion has done little for the overall health of the Mexican economy or the well-being of Mexican workers. As Mark Weisbrot points out:

If we look at the most basic measure of economic progress, the growth of gross domestic product, or income per person, Mexico, which signed on to NAFTA in 1994, has performed the 15th-best out of 20 Latin American countries.

Other measures show an even sadder picture. The poverty rate in 2014 was 55.1 percent, an increase from the 52.4 percent measurement in 1994.

Wages tell a similar story: There’s been almost no growth in real inflation-adjusted wages since 1994 — just about 4.1 percent over 21 years.

Representative Sander Levin and Harley Shaiken make clear that the gains have been nonexistent even for workers in the Mexican auto industry, the country’s leading export center:

Consider the auto industry, the flagship manufacturing industry across North America. The Mexican auto industry exports 80 percent of its output of which 86 percent is destined for the U.S. and Canada. If high productivity translated into higher wages in Mexico, the result would be a virtuous cycle of more purchasing power, stronger economic growth, and more imports from the U.S.

In contrast, depressed pay has become the “comparative advantage”. Mexican autoworker compensation is 14 percent of their unionized U.S. counterparts and auto parts workers earn even less–$2.40 an hour. Automation is not the driving force; its depressed wages and working conditions.

In other words, US workers aren’t the only workers to suffer from the globalization strategies of multinational corporations.  Mexican workers are also suffering, and resisting.

In sum, it is hard to square this reality with Trump’s claim that because of the way NAFTA was negotiated Mexico “has made us look foolish.” The truth is that NAFTA, as designed, helped further a corporate driven globalization process that has greatly benefited US corporations, as well as Mexican political and business elites, at the expense of workers on both sides of the border.  Blaming Mexico serves only to distract US workers from the real story.

The US-Chinese Trade Relationship

The Chinese economy also went through a major transformation in the mid-1990s which paved the way for a massive inflow of export-oriented foreign investment targeting the United States.  The process and outcome was different from what happened in Mexico, largely because of the legacy of Mao era policies.  The Chinese Communist Party’s post-1978 state-directed reform program greatly benefited from an absence of foreign debt; the existence of a broad, largely self-sufficient state-owned industrial base; little or no foreign investment or trade; and a relatively well-educated and healthy working class.  This starting point allowed the Chinese state to retain considerable control over the country’s economic transformation even as it took steps to marketize economic activity in the 1980s and privatize state production in the 1990s.

However, faced with growing popular resistance to privatization and balance of payments problems, the Chinese state decided, in the mid-1990s, to embrace a growing role for export-oriented foreign investment.  This interest in attracting foreign capital dovetailed with the desire of multinational corporations to globalize their production.  Over the decade of the 1990s and 2000s, multinational corporations built and expanded cross border production networks throughout Asia, and once China joined the WTO, the country became the region’s primary final assembly and export center.

As a result of this development, foreign produced exports became one of the most important drivers, if not the most important, of Chinese growth.  For example, according to Yılmaz Akyüz, former Director of UNCTAD’s Division on Globalization and Development Strategies:

despite a high import content ranging between 40 and 50 percent, approximately one-third of Chinese growth before the global crisis [of 2008] was a result of exports, due to their phenomenal growth of some 25 percent per annum. This figure increases to 50 percent if spillovers to consumption and investment are allowed for. The main reason for excessive dependence on foreign markets is under consumption. This is due not so much to a high share of household savings in GDP as to a low share of household income and a high share of profits

The figure below illustrates the phenomenal growth in Chinese exports.

china-exports

The US soon became the primary target of China’s exports (see the trade figures below).   The US now imports more goods from China than from any other country, approximately $480 billion in 2015, followed by Canada and Mexico (roughly $300 billion each).  The US also runs its largest merchandise trade deficit with China, $367 billion in 2015, equal to 48 percent of the overall US merchandise trade deficit.  In second place was Germany, at only $75 billion.

china-trade-us

Adding to China’s high profile is the fact that it is the primary supplier of many high technology consumer goods, like cell phones and laptops. More specifically:

(F)or 825 products, out of a total of about 5,000, adding up to nearly $300 billion, China supplies more than all our other trade partners combined. Of these products, the most important is cell phones, where $40 billion in imports from China account for more than three-quarters of the total value imported.

There are also 83 products where 90 percent or more of US imports come from China; together these accounted for a total of $56 billion in 2015. The most important individual product in this category is laptop computers, which alone have an import value of $37 billion from China, making up 93 percent of the total imported.

Of course, China is also a major supplier of many low-technology, low-cost goods as well, including clothing, toys, and furniture.

Not surprisingly, exports from China have had a significant effect on US labor market conditions. Economists David Autor, David Dorn and Gordon Hanson “conservatively estimate that Chinese import competition explains 16 percent of the U.S. manufacturing employment decline between 1990 and 2000, 26 percent of the decline between 2000 and 2007, and 21 percent of the decline over the full period.”  They also find that Chinese import competition “significantly reduces earnings in sectors outside manufacturing.”

President Trump has accused China of engaging in an undeclared trade war against the United States.   However, while Trump’s charges conjure up visions of a massive state-run export machine out to crush the United States economy for the benefit of Chinese workers, the reality is quite different.

First, although the Chinese state retains important levers of control over economic activity, especially the state-owned banking system, the great majority of industrial production and export activity is carried out by private firms.  In 2012, state-owned enterprises accounted for only 24 percent of Chinese industrial output and 18 percent of urban employment.  As for exports, by 2013 the share of state-owned enterprises was down to 11 percent.  Foreign-owned multinationals were responsible for 47 percent of all Chinese exports.  And, most importantly in terms of their effect on the US economy, multinational corporations produce approximately 82 percent of China’s high-technology exports.

Second, although these high-tech exports come from China, for the most part they are not really “Chinese” exports.  As noted above, China now functions as the primary assembly point for the region’s cross border production networks.  Thus, the majority of the parts and components used in Chinese-based production of high-technology goods come from firms operating in other Asian countries.  In many cases China’s only contribution is its low-paid labor.

A Washington Post article uses the Apple iPhone 4, a product that shows up in trade data as a Chinese export, to illustrate the country’s limited participation in the production of its high technology exports:

In a widely cited study, researchers found that Apple created most of the product’s value through its product design, software development and marketing operations, most of which happen in the United States. Apple ended up keeping about 58 percent of the iPhone 4’s sales price. The gross profits of Korean companies LG and Samsung, which provided the phone’s display and memory chips, captured another 5 percent of the sales price. Less than 2 percent of the sales price went to pay for Chinese labor.

“We estimate that only $10 or less in direct labor wages that go into an iPhone or iPad is paid to China workers. So while each unit sold in the U.S. adds from $229 to $275 to the U.S.-China trade deficit (the estimated factory costs of an iPhone or iPad), the portion retained in China’s economy is a tiny fraction of that amount,” the researchers wrote.

The same situation exists with laptop computers, which are assembled by Chinese workers under the direction of Taiwanese companies using imported components and then exported as Chinese exports.  Economists have estimated that the US-Chinese trade balance would be reduced by some 40 percent if the value of these imported components were subtracted from Chinese exports.  Thus, it is not Chinese state enterprises, or even Chinese private enterprises, that are driving China’s exports to the US.  Rather it is foreign multinationals, many of which are headquartered in the US, including Apple, Dell, and Walmart.

And much like in Mexico, Chinese workers enjoy few if any benefits from their work producing their country’s exports.  The figure below highlights the steady fall in labor compensation as a share of China’s GDP.

china-labor

Approximately 80 percent of Chinese manufacturing workers are internal migrants with a rural household registration.  This means they are not entitled to access the free or subsidized public health care, education, or other social services available in the urban areas where they now work; the same is true for their children even if they are born in urban areas.  Moreover, most migrants receive little protection from Chinese labor laws.

For example, as the China Labor Bulletin reports:

In 2015, seven years after the implementation of the Labor Contract Law, only 36 percent of migrant workers had signed a formal employment contract with their employer, as required by law. In fact the percentage of migrant workers with formal contracts actually declined last year by 1.8 percent from 38 percent. For short-distance migrants, the proportion was even lower, standing at just 32 percent, suggesting that the enforcement of labor laws is even less rigid in China’s inland provinces and smaller cities.

According to the [2014] migrant worker survey . . . the proportion of migrant workers with a pension or any form of social security remained at a very low level, around half the national average. In 2014, only 16.4 percent of long-distance migrants had a pension and 18.2 percent had medical insurance.

Despite worker struggles, which did succeed in pushing up wages over the last 7 years, most migrant workers continue to struggle to make ends meet.   Moreover, with Chinese growth rates now slipping, and the government eager to restart the export growth machine, many local governments have decided, with central government approval, to freeze minimum wages for the next two to four years.

In short, it is not China, or its workers, that threaten US jobs and well-being.  It is the logic of capitalist globalization.  Thus, Trump’s call-to-arms against China obfuscates the real cause of current US economic problems and encourages working people to pursue a strategy of nationalism that can only prove counterproductive.

The Political Challenge Facing US Workers

The globalization process highlighted above was strongly supported by all major governments, especially by successive US administrations.  In contrast to Trump claims of a weak US governmental effort in support of US economic interests, US administrations used their considerable global power to secure the creation of the WTO and approval of a host of other multilateral and bilateral trade agreements, all of which provided an important infrastructure for capital mobility, thereby supporting the globalizing efforts of leading US multinational corporations.

President Trump has posed as a critic of existing international arrangements, claiming that they have allowed other countries, such as Mexico and China, to prosper at US expense.  He has stated that he will pursue new bilateral agreements rather than multilateral ones because they will better serve US interests and he has demanded that US multinational corporations shift their investment and production back to the US.

Such statements have led some to believe that the Trump administration is serious about challenging globalization dynamics in order to rebuild the US economy in ways that will benefit working people.  But there are strong reasons to doubt this.  Most importantly, he seems content to threaten other governments rather than challenge the profit-maximizing logic of dominant US companies, which as we have seen is what needs to happen.

One indicator: an administration serious about challenging the dynamics of globalization would have halted US participation in all ongoing negotiations for new multilateral agreements, such as the Trade in Services Agreement which is designed to encourage the privatization and deregulation of services for the benefit of multinational corporations.  This has not happened.

Such an administration would also renounce support for existing and future bilateral agreements that contain chapters that strengthen the ability of multinational corporations to dominate key sectors of foreign economies and sue their governments in supranational secret courts.  This has not happened.

Another indicator: an administration serious about creating a healthy, sustainable, and equitable domestic economy would strengthen and expand key public services and programs; rework our tax system to make it more progressive; tighten and increase enforcement of health and safety and environmental regulations; strengthen labor laws that protect the rights of workers, including to unionize; and boost the national minimum wage.  The Trump administration appears determined to do the opposite.

Such an administration would also begin to develop the state capacities necessary to redirect existing production and investment activity along lines necessary to rebuild our cities and infrastructure, modernize our public transportation system, and reduce our greenhouse gas emissions.  The Trump administration appears committed to the exact opposite.

In short, if we take Trump’s statements seriously, that he actually wants to shift trading relationships, then it appears that his primary strategy is to make domestic conditions so profitable for big business, that some of the most globally organized corporations will shift some of their production back to the United States.  However, even if he succeeds, it is very unlikely that this will contribute to an improvement in majority living and working conditions.

The main reason is that US corporations, having battered organized labor with the assistance of successive administrations, have largely stopped creating jobs that provide the basis for economic security and well-being.  Economists Lawrence F. Katz and Alan B. Krueger examined the growth  from 2005 to 2015 in “alternative work arrangements,” which they defined as temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers.

They found that the percentage of workers employed in such arrangements rose from 10.1 percent of all employed workers in February 2005 to 15.8 percent in late 2015.  But their most startling finding is the following:

A striking implication of these estimates is that all of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements. Total employment according to the CPS increased by 9.1 million (6.5 percent) over the decade, from 140.4 million in February 2005 to 149.4 in November 2015. The increase in the share of workers in alternative work arrangements from 10.1 percent in 2005 to 15.8 percent in 2015 implies that the number of workers employed in alternative arrangement increased by 9.4 million (66.5 percent), from 14.2 million in February 2005 to 23.6 million in November 2015. Thus, these figures imply that employment in traditional jobs (standard employment arrangements) slightly declined by 0.4 million (0.3 percent) from 126.2 million in February 2005 to 125.8 million in November 2015.

A further increase in employment in such “alternative work arrangements,” which means jobs with no benefits or security, during a period of Trump administration-directed attacks on our social services, labor laws, and health and safety and environmental standards is no answer to our problems. Despite what President Trump says, our problems are not caused by other governments or workers in other countries.  Instead, they are the result of the logic of capitalism. The Trump administration, really no US administration, is going to willingly challenge that. That is up to us.

We Need To Once Again Take “The Working Class” Seriously

The great majority of working people in the US have experienced tough times over the last few decades.  And all signs point to the fact that those in power are committed to policies that will mean a further deterioration in majority living and working conditions.

One obvious response to this situation is organizing; working people need strong organizations that are capable of building the broad alliances and advancing the new visions necessary to challenge and transform existing political-economic relationships and institutions. Building such organizations requires, as a first step, both acknowledging the existence of the working class and taking the concerns of its members seriously.

Unfortunately, as Reeve Vanneman shows in a Sociological Images blog post, writers appear to have largely abandoned use of the term “working class.”  One indicator is the trend illustrated in the chart below, which is derived from Google Books’ Ngram Viewer.  The Ngram Viewer is able to display a graph showing how often a particular word or phrase appears in a category of books over selected years.  In this case, the chart below shows how often the two-word phrase “working class” (a bigram) appears as a percentage of all two word phrases used in all books written in American English.

google

As Vanneman explains:

a Google ngram count of the phrase “working class” in American books shows a spike in the Depression Thirties and an even stronger growth from the mid-1950s to the mid-1970s. But after the mid-1970s, there is a steady decline, implying a lack of discussion just as their problems were growing.

A similar overall trend emerges from “a count of the frequencies of ‘working class’ in the titles or abstracts of articles in the American Journal of Sociology and the American Sociological Review.”  As we see in the chart below, there was a rapid growth in the use of the phrase from the late 1950s through most of the 1960s, followed by a slow but steady decline until the mid-1980s, and then, after a brief resurgence, a dramatic fall off in its use.

sociology

As Vanneman comments: “These articles on the working class were not insignificant; even through the 21st century, the authors include a number of ASA presidents. But overall, working-class issues seem to have lost their salience, as if even American sociology was also telling them that they didn’t matter.”

While there is no simple relationship between working class activism and scholarship on the working class, the synergy is important.  Now is the time to take working class issues seriously.  Given current trends, we desperately need a revival of labor activism and the development of labor-community alliances around issues such as housing, health care, discrimination, and the environment.  And we also need new scholarship that shines a light on as well as engages the challenges of our time from a working class standpoint.