General Electric: A Window On The U.S. Economy

We can learn a lot about our political-economy — and the challenges we face — from a recent New York Times article that profiled General Electric, the nation’s largest corporation. 

LESSON ONE is that U.S. corporations have become quite good at avoiding taxes.  According to the New York Times:

[General Electric] reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States. 

Its American tax bill?  None. In fact, G.E. claimed a tax benefit of $3.2 billion.

Nice trick isn’t it.  No wonder we are facing a growing fiscal crisis.

LESSON TWO is that U.S. corporations are now directly shaping public policy.  As the New York Times reports:

In January, President Obama named Jeffrey R. Immelt, General Electric’s chief executive, to head the President’s Council on Jobs and Competitiveness. “He understands what it takes for America to compete in the global economy,” Mr. Obama said.

GE and other corporations have learned how to compete in the global economy all right—largely by using their influence to create extremely attractive tax laws and by employing innovative accounting which enables them to concentrate their profits in offshore tax havens.  As the New York Times notes:

G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.

Thanks to this corporate-government nexus, G.E. reported a tax burden equal to 7.4 percent of its American profits.  Although a leader in this regard, it is far from unique—the corporate share of U.S. receipts has fallen from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.

LESSON THREE is that U.S. corporations have shifted their operations away from goods production—finance is where the action is.  According to the New York Times:

General Electric has been a household name for generations, with light bulbs, electric fans, refrigerators and other appliances in millions of American homes. But today the consumer appliance division accounts for less than 6 percent of revenue, while lending accounts for more than 30 percent. . . .

Because its lending division, GE Capital, has provided more than half of the company’s profit in some recent years, many Wall Street analysts view G.E. not as a manufacturer but as an unregulated lender that also makes dishwashers and M.R.I. machines.

LESSON FOUR is that U.S. corporations are increasingly accumulating their profits and moving their operations out of the U.S.  As the New York Times explains:

As [GE] expanded abroad, the portion of its profits booked in low-tax countries such as Ireland and Singapore grew far faster. From 1996 through 1998, its profits and revenue in the United States were in sync — 73 percent of the company’s total. Over the last three years, though, 46 percent of the company’s revenue was in the United States, but just 18 percent of its profits. . . .

Since 2002, the company has eliminated a fifth of its work force in the United States while increasing overseas employment. In that time, G.E.’s accumulated offshore profits have risen to $92 billion from $15 billion.

President Obama is right–GE does know how to complete in the global economy.  Unfortunately, its strategies will not help strengthen our economy in ways responsive to majority needs.  Given that President Obama has appointed its CEO to help chart our economic future, it is a safe bet that unless we develop an effective resistance, this future is not going to to be an attractive one for us.     

Education And The Labor Market

Experts often claim that education is the key to our unemployment problems.  The more education the better.  The following two charts, taken from the New York Times Economix blog, shed some light on this claim.  The first shows that unemployment rates are indeed responsive to education; the more years of education, the lower the unemployment rate.   As this chart also makes clear, workers at all educational levels are currently suffering extremely high rates of unemployment compared with past years. 

  

However, the second chart (below) suggests that once someone does lose a job, more years of education is no help in finding a new job. This chart also makes clear that those who are unemployed are staying unemployed far longer than before.   The average duration of unemployment reached a record 37.1 weeks in February 2011.  That is a long time to be without a job, and as discussed previously, even before the recent economic collapse there was very little net private sector job creation.   As BusinessWeek pointed out: “Between May 1999 and May 2009, employment in the private sector only rose by 1.1%, by far the lowest 10-year increase in the post-depression period. It’s impossible to overstate how bad this is. Basically speaking, the private sector job machine has almost completely stalled over the past ten years.”

Moving Beyond Wisconsin

The struggles in Madison have understandably focused attention on the wages and working conditions of public sector workers.  Thankfully, it appears that these struggles have helped to promote greater solidarity between public and private sector workers.  Now, we must build on this new solidarity to focus our collective energies on the bigger challenge: transforming a system that demands that workers (in both the public and private sector) accept ever worsening living and working conditions.

As many involved in the Wisconsin struggles have pointed out, there is plenty of wealth being produced—the problem is that those who are doing the producing are being increasingly denied access to it, both collectively and individually.  For example, as the Economic Policy Institute points out:

U.S. productivity grew by 62.5% from 1989 to 2010, far more than real hourly wages for both private-sector and state/local government workers, which grew 12% in the same period. Real hourly compensation grew a bit more (20.5% for state/local workers and 17.9% for private-sector workers) but still lagged far behind productivity growth.

The chart below highlights this development.  As one can see, the real issue isnt whether public sector workers make more or less than private sector workers (and the chart covers compensation which includes pay and benefits).  Rather it is that workers together have been increasingly productive but receving an increasingly smaller share of the fruits of their labor.    Those who are well place to benefit, those at the very top of the income scale, have of course done quite well.  For example, the richest 1% received 56% of all the income growth between 1989 and 2007 (before the start of the recession).  By contrast the bottom 90% got only 16%.

If we want to change this we are going to have to build a powerful political movement, one that is prepared to take on the powerful interests that are determined to keep spending on the military; privatizing our educational, health, and retirement systems; promoting corporate mobility; weakening labor laws; and confusing us all about the causes of existing trends.  

  

A Different Kind of Job Crisis

Jobs, Jobs, Jobs—recent data suggests that we are starting to see an uptick in hiring; Moreover, the unemployment rate is starting to fall.  This seems enough progress for some to declare a happy road ahead—which means that we should rest easy and stop talking about the need for structural changes in the way our economy is organized.

Before jumping on that bandwagon we need to remember that growth in employment was bound to happen sooner or later.  After all, we are in an officially declared period of economic expansion (which started in June 2009).  At issue is the quality of the expansion.  You know you have a serious problem when the expansion—a period when times are supposed to be good—is hard to tell from a recession.

In fact, we have a long way to go to replace the jobs lost during our last recession (which officially began in December 2007).  The chart below shows how many months it takes after the start of a recession to regain the absolute number of jobs that existed before the start of the recession.  Two things jump out: first, it is taking longer and longer for the economy to regain its lost jobs, which suggests that underlying economic processes are growing increasingly problematic for working people.  And second, the current recovery is in uncharted territory.  It may well be that we will fall into another recession before we ever get back to the number of jobs we had before our last recession began.  That possibility grows ever more likely as we slash state and local government spending.

However, there is another issue worth highlighting: the quality of the jobs being created.  Bloomberg BusinessWeek discussed this issue, reporting:

While the unemployment rate dropped to 9 percent in January [2011], from a two-decade peak of 10.1 percent in October 2009, many of the jobs people are now taking don’t match the pay, the hours, or the benefits of the 8.75 million positions that vanished in the recession, according to Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

This may restrain wage and salary growth, limiting gains in consumer spending, which accounts for 70 percent of the U.S. economy. The good jobs that would trigger a solid boost in spending just don’t seem to be there. “In the last recovery we were adding management jobs at this point, and this time it’s disappointing,” says Ashworth, who published a report on Jan. 27 about pre- and post-slump employment based on U.S. Labor Dept. data. “The very best jobs, we’re still losing those.”

Projections from the Bureau of Labor Statistics reinforce his pessimism. While the number of openings for food preparation and serving workers will grow by 394,000 in the decade ending in 2018, the average wage is only $16,430 including tips, based on 2008 data. Meanwhile, the number of posts for financial examiners, who work at financial-services firms to ensure regulatory compliance, will expand by just 11,100. The average pay for examiners is $70,930.

Lowe’s, the second-largest U.S. home improvement retailer, typifies the reshuffling of the U.S. workforce. The chain, based in Mooresville, N.C., said on Jan. 25 it is eliminating 1,700 managers responsible for store operations, sales, and administration as profit growth trails that of the larger Home Depot (HD) chain. Meanwhile, Lowe’s said it will add 8,000 to 10,000 weekend sales positions and is creating a new assistant store manager position.

The trend is troubling for the country’s long-term prospects, says Edmund Phelps, who won the Nobel Prize for economics in 2006 and directs the Center on Capitalism and Society at Columbia University in New York. Businesses aren’t innovating as much, so companies “just don’t seem to require all those relatively high-paid workers they once did,” he says.

The health-care industry is one example, the BLS said in a December report on the occupational outlook. As costs continue to rise, “tasks that were previously performed by doctors, nurses, dentists, or other health-care professionals increasingly are being performed by physician assistants, medical assistants, dental hygienists, and physical therapist aides.”

Michael Greenstone, a former staff member for the White House Council of Economic Advisers, says it’s “premature to make too much of where the particular job creation is occurring,” because the “immediate issue is that there are too many people” out of work. “I’m not in favor of ditch-digging, but the first thing is to get more people employed,” says Greenstone, an economics professor at the Massachusetts Institute of Technology. “Unemployment is a scourge of society right now, and it has to be the front-and-center issue.”

Job hunters are adapting, with 60 percent prepared to settle for a full-time position they don’t really want or one they’re not qualified for, says Dennis Jacobe, chief economist for Washington-based Gallup, based on a survey he conducted last month.

Ken Niswonger, 51, a machine builder by training, spent five months looking for work after losing his job in October 2009. Unable to find anything in his field, he enrolled in a college computer security program to learn new skills. “I’m hoping I can find something entry-level,” he says, adding that he’ll have to begin his search for an information technology job before he finishes his program. “I’m well aware I might not get what I used to make,” he says. “Who knows? Might get a job at $12 to $14 an hour. That’s not even $30,000 a year.”

Said differently, economic expansion or not, things are far from fine.

Trusting The Corporations

In a capitalist economy, the engine of growth is the pursuit of profit by capitalists.  Over time, capitalists have used their structural leverage to transform the economic environment to make it easier for them to make profits.  They succeeded in lowering their taxes, reducing regulations, weakening unions, privatizing public activities, and winning greater freedom to globalize their operations.  While we were encouraged to believe that their success would produce benefits for the great majority, that is not how it turned out. 

Check out the charts below; they highlight who has actually gained.

 

 

Ironically, capitalist leverage over policy continues to grow even now, despite the fact that we continue to struggle to overcome depressed economic conditions largely caused by their pursuit of profit.  Desperate to create jobs, President Obama is eager to do whatever the leading capitalists think would be helpful.   Therefore, he established his own Council on Jobs and Competitiveness and made sure it had ample corporate representation. 

The council members include the ceo and chairman of General Electric; the chairman and chief executive officer of American Express; the chairman of the board, president, and chief executive officer of Southwest Airlines; the chair of the board and chief executive officer of DuPont; the former chairman of the board, president and chief executive officer of Procter and Gamble; the president and chief executive officer of Intel Corporation; the chairman and chief executive officer of Kodak; the chairman and ceo of Comcast Corporation and chairman of the board of directors of NBC Universal; the chairman, president and chief executive officer of Burlington Northern Santa Fe Railway Corporation; the chief operating officer at Facebook; and the chairman for UBS Americas and president for UBS Investment Bank.  There are a few other corporate heads and, oh yes, the president of the AFL-CIO, and the president of the United Food and Commercial Workers. 

So, what kind of ideas is this council coming up with to  create jobs?  The Wall Street Journal describes its first meeting this way:

“We want to stay focused on areas we think that we can see results,” General Electric CEO Jeff Immelt, who leads the panel, said in the council’s post-meeting press conference near the White House, according to reports filed from the event.

But, at least a couple members’ “laser-like” focus, as Mr. Immelt put it, seemed to be more on the needs of his own company. A White House official said the CEOs on the council were asked to provide insights from their industries.

For council member Lewis Hay of energy provider NextEra Energy, growing jobs means investing in new power plants. Companies like his are doing that, he said, but hey, a little more clarity on government regulations would be a big help, he said.

Next up: Ken Chenault of American Express, who complained that while the credit card business is “seeing growth across every category,” what’s really needed are efforts to help the middle class gain greater access to credit.

The president pulled the CEOs up short by telling them: “You’re going to have to help us identify where the future job growth is going to come from.”

Guess that depends on which council member you talk to.

Feel more confident about the future now?