Reports from the Economic Front

a blog by Marty Hart-Landsberg

Category Archives: Inequality

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.

Gender, Race, Ethnicity and Labor Unity

There was a lot of talk this election season about the worsening economic conditions of White males.

The chart below, from an Economic Policy Institute report by Alyssa Davis and Elise Gould titled Closing the Pay Gap and Beyond, shows the hourly median wage growth for workers of different gender, race, and ethnicity compared with the economy-wide growth in productivity over the period 1979 to 2014.  As we can see, White male workers do indeed have something to complain about; in contrast to worker productivity, which grew by 62.7 percent over the period, their hourly median wage actually fell by 3.1 percent.

all-worker-decline

But, all this talk about White male workers distracts from the fact that Hispanic and Black men, who on average make significantly less than White men, suffered an even greater decline in their respective hourly median wages.  Thus, relatively speaking, White male workers have far less to complain about than Black and Hispanic male workers.

At the same time, the chart does show positive gains in hourly median wages for women, with White women enjoying the largest gain over the period, 30.2 percent.   However, these gains need to be put in perspective.

As the chart below shows, the earnings gap between men and women remains significant.  The gender gap narrowed over the decades of the 1980s and 1990s, partly because women’s wages rose and partly because men’s wages fell.  However, the size of the gap has not changed much since.  In fact, the most striking thing is that the median hourly wages of both men and women have been in decline.

gender-gap

It is also worth noting, as we can see in the chart below, that this gender gap exists at all levels of education, and in fact grows with the level of education.

education-and-gender

And, just as with men, it is important to recognize that the experience of women workers is also shaped by race and ethnicity. As we saw in the first chart above, White women did far better than Black and Hispanic women over the period 1979 to 2014.  And they did so from a higher earnings base: while White women earn approximately 81.8 percent of the White male median wage level, the corresponding percentage for Black women is 65.1 percent, and for Hispanic women only 58.9 percent.  Clearly, there is not a lot for women to cheer about either, despite their relatively better wage performance over the entire period.

Unfortunately, the media focus on White males and their economic difficulties works to weaken the unity, and by extension power, of the labor movement.  One reason is that it marginalizes non-White workers by making them invisible, despite the fact that they confront, as we saw above, far worse economic conditions than White males. Another is that it divides the labor movement into competing groups, setting up a gender conflict in which White male losses are explained by female gains, even though both male and female hourly median wages are falling.

The fact is that the great majority of workers are struggling, even during this so-called period of economic recovery.  As the chart below shows, while productivity grew by 62.7 percent over the period 1979 to 2014, the overall hourly compensation (which includes both wages and benefits) of a typical worker grew by only 8 percent.  This growing gap between productivity and compensation, created by corporate and state policies, helps to explain why profits and the income of the wealthy are growing so rapidly while worker earnings stagnate at best.

pay-and-productivity

There is no shortcut to confronting and reversing existing trends.  Only a strong united labor movement can anchor the broader movement for change that we need.  Building that unity requires developing a shared understanding of the way discrimination produces pay gaps based on gender, race, and ethnicity, gaps that disproportionately benefit corporate bottom lines.  It also requires prioritizing struggles that help to close those gaps in ways that strengthen worker power in both the workplace and community.

The authors of the EPI study provide a useful list of demands that point in the right direction:

Besides doing everything we can to eradicate labor market disparities based on gender and race, to maximize women’s economic security, we should pursue policies that spur broad-based wage growth by giving workers more leverage to secure higher pay. These policies include bringing about full employment, restoring the right to collective bargaining, raising the minimum wage and tipped minimum wage, guaranteeing access to paid sick leave and paid family leave, providing accessible and high-quality child care, ensuring that hourly workers can get the number of hours they need and curtailing employers’ irregular scheduling practices, increasing retirement security, updating  and enforcing labor standards (e.g., raising the overtime salary threshold and cracking down on wage theft), enacting comprehensive immigration reform and providing undocumented workers a path to citizenship, and strengthening the social safety net.

The new Trump administration has made clear its anti-worker agenda and determination to break unions.  Our response has to include serious efforts to revitalize the trade union movement and build popularly-led labor-community alliances in support of good jobs, a strong and accountable public sector, and sustainable and healthy cities.  Cutting through the misinformation about the divisions within and conditions facing US workers is a small but necessary step.

The Devastating Transformation Of Work In The US

Two of the best-known labor economists in the US,  Lawrence F. Katz and Alan B. Krueger, recently published a study of the rise of so-called alternative work arrangements.

Here is what they found:

The percentage of workers engaged in alternative work arrangements – defined as temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers – rose from 10.1 percent [of all employed workers] in February 2005 to 15.8 percent in late 2015.

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 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.

Take a moment to let that sink in—and think about what that tells us about the operation of the US economy and the future for working people.  Employment in so-called traditional jobs is actually shrinking. The only types of jobs that have been growing in net terms are ones in which workers have little or no security and minimal social benefits.

Figure 2 from their study shows the percentage of workers in different industries that have alternative employment arrangements.  The share has grown substantially over the last ten years in almost all of them.  In Construction, Professional and Business Services, and Other Services (excluding Public Services) approximately one quarter of all workers are employed using alternative work arrangements.

distribution

The study

Because the Bureau of Labor Statistics has not updated its Contingent Work Survey (CWS), the authors contracted with the RAND institute to do their own study.  Thus, Rand expanded its own American Life Panel (ALP) surveys in October and November 2015 to include questions similar to those asked in the CWS.   They surveys only collected information about the surveyed individual’s main job.  And, to maintain compatibility with the CWS surveys, day laborers were not included in the results.  Finally, the authors only included information from individuals who had worked in the survey reference week.

People were said to be employed under alternative work arrangements if they were “independent contractors,” “on-call workers,” “temporary help agency workers,” or “workers provided by contract firms.  The authors defined these terms as follows:

“Independent Contractors” are individuals who report they obtain customers on their own to provide a product or service as an independent contractor, independent consultant, or freelance worker. “On-Call Workers” report having certain days or hours in which they are not at work but are on standby until called to work. “Temporary Help Agency Workers” are paid by a temporary help agency. “Workers Provided by Contract Firms” are individuals who worked for a company that contracted out their services during the reference week.

The results in more detail

All four categories of nonstandard work recorded increases:

Independent contractors continue to be the largest group (8.9 percent in 2015), but the share of workers in the three other categories more than doubled from 3.2 percent in 2005 to 7.3 percent in 2015. The fastest growing category of nonstandard work involves contracted workers. The percentage of workers who report that they worked for a company that contracted out their services in the preceding week rose from 0.6 percent in 2005 to 3.1 percent in 2015.

Table 4 shows the percentage of workers in different categories that are employed for their main job in one of the four nonstandard work arrangements.  The relevant comparisons over time are with the two CPS studies and the Alternative Weighted results from the Rand study.

4b

Here are some of the main findings:

There is a clear age gradient that has grown stronger, with older workers more likely to have nonstandard employment than younger workers.  In 2015, 6.4 percent of those aged 16 to 24 were employed in an alternative work arrangement, while 14.3 percent of those aged 25-54 and 23.9 percent of those aged 55-74 had nonstandard work arrangements.

The percentage of women with nonstandard work arrangements grew dramatically from 2005 to 2015, from 8.3 percent to 17 percent.  Women are now more likely to be employed under these conditions than men.

Workers in all educational levels experienced a jump in nonstandard work, with the increase greatest for those with a bachelor’s degree or higher.  “Occupational groups experiencing particularly large increases in the nonstandard work from 2005 to 2015 include computer and mathematical, community and social services, education, health care, legal, protective services, personal care, and transportation jobs.”

The authors also tested to determine “whether alternative work is growing in higher or lower wage sectors of the labor market.”  They found that “workers with attributes and jobs that are associated with higher wages are more likely to have their services contracted out than are those with attributes and jobs that are associated with lower wages. Indeed, the lowest predicted quintile-wage group did not experience a rise in contract work.”

The take-away

The take-away is pretty clear.  Corporate profits and income inequality have grown in large part because US firms have successfully taken advantage of the weak state of unions and labor organizing more generally, to transform work relations.  Increasingly workers, regardless of their educational level, find themselves forced to take jobs with few if any benefits and no long-term or ongoing relationship with their employer.  Only a rejuvenated labor movement, one able to build strong democratic unions and press for radically new economic policies will be able to reverse existing trends.

Capitalism and Inequality

Defenders of capitalism in the United States often choose not to use that term when naming our system, preferring instead the phrase “market system.”  Market system sounds so much better, evoking notions of fair and mutually beneficial trades, equality, and so on.  The use of that term draws attention away from the actual workings of our system.

In brief, capitalism is a system structured by the private ownership of productive assets and driven by the actions of those who seek to maximize the private profits of the owners.  Such an understanding immediately raises questions about how some people and not others come to own productive wealth and the broader social consequences of their pursuit of profit.

Those are important questions because it is increasingly apparent that while capitalism continues to produce substantial benefits for the largest asset owners, those benefits have increasingly been secured through the promotion of policies – globalization, financialization, privatization of state services, tax cuts, attacks on social programs and unions–that have both lowered overall growth and left large numbers of people barely holding the line, if not actually worse off.

The following two figures come from a Washington Post article by Jared Bernstein, in which he summarizes the work of Thomas Piketty, Emmanuel Saez and Gabriel Zucman. The first figure shows the significant decline in US pre-tax income growth.  In the first period (1946-1980), pre-tax income grew by 95 percent.  In the second (1980-2014), it grew by only 61 percent.

income-trends

This figure also shows that this slower pre-tax income growth has not been a problem for those at the top of the income distribution.  Those at the top more than compensated for the decline by capturing a far greater share of income growth than in the past.  In fact, those in the bottom 50 percent of the population gained almost nothing over the period 1980 to 2014.

The next figure helps us see that the growth in inequality has been far more damaging to the well-being of the bottom half than the slowdown in overall income growth.  As Bernstein explains:

The bottom [blue] line in the next figure shows actual pretax income for adults in the bottom half of the income scale. The top [red] line asks how these folks would have done if their income had grown at the average rate from the earlier, faster-growth period. The middle [green] line asks how they would have done if they experienced the slower, average growth of the post-1980 period.

The difference between the top two lines is the price these bottom-half adults paid because of slower growth. The larger gap between the middle and bottom line shows the price they paid from doing much worse than average, i.e., inequality (aging demographics are also in play, but the researchers show that they do not explain the extent of the slowdown in income growth). That explains about two-thirds of the difference in endpoints. Slower growth hurt these families’ income gains, but inequality hurt them more.

inequality-versus-growth

A New York Times analysis of pre-tax income distribution over the period 1974 to 2014 reinforces this conclusion about the importance of inequality.  As we can see in the figure below, the top 1 percent and bottom 50 percent have basically changed places in terms of their relative shares of national income.

changing-places

The steady ratcheting down in majority well-being is perhaps best captured by studies designed to estimate the probability of children making more money than their parents, an outcome that was the expectation for many decades and that underpinned the notion of “the American dream.”

Such research is quite challenging, as David Leonhardt explains in a New York Times article, “because it requires tracking individual families over time rather than (as most economic statistics do) taking one-time snapshots of the country.”  However, thanks to newly accessible tax records that go back decades, economists have been able to estimate this probability and how it has changed over time.

Leonhardt summarizes the work of one of the most important recent studies, that done by economists associated with the Equality of Opportunity Project.   In summary terms, those economists found that a child born into the average American household in 1940 had a 92 percent chance of making more than their parents.  This falls to 79 percent for a child born in 1950, 62 percent for a child born in 1960, 61 percent for a child born in 1970, and only 50 percent for a child born in 1980.

The figure below provides a more detailed look at the declining fortunes of most Americans.   The horizontal access shows the income percentile a child is born into and the vertical access shows the probability of that child earning more than their parents.   The drop-off for children born in 1960 and 1970 compared to the earlier decade is significant and is likely the result of the beginning effects of the changes in capitalist economic dynamics that started gathering force in the late 1970s, for example globalization, privatization, tax cuts, union busting, etc.  The further drop-off for children born in 1980 speaks to the strengthening and consolidation of those dynamics.

american-dream

The income trends highlighted in the figures above are clear and significant, and they point to the conclusion that unless we radically transform our capitalist system, which will require building a movement capable of challenging and overcoming the power of those who own and direct our economic processes, working people in the United States face the likelihood of an ever-worsening future.

Confronting Capitalist Globalization

Trade agreements were a major issue in the US presidential election.  Bernie Sanders and Donald Trump both made opposition to the Transpacific Partnership a central part of their respective campaigns, and the popularity of this position eventually forced Hillary Clinton to also oppose it.  A number of mainstream economists even began to acknowledge that many working people actually had reason to be critical of globalization dynamics.  These economists still held that globalization brought positive benefits to the country.  The problem, in their opinion, was that the gains had not been equally distributed, with many workers, especially in manufacturing, suffering wage and employment losses.  Of course, few offered meaningful suggestions for correcting the problem.

Now that Trump has been elected, economists again appear to be downplaying the negative consequences of globalization, arguing that it is technology, rather than globalization, that best explains the growth in inequality and worker insecurity.  No doubt this stems from their concern that popular dissatisfaction with current economic conditions might grow from opposition to trade agreements into an actual challenge to contemporary globalization dynamics, which means capitalism itself.

Contemporary globalization dynamics are an expression of capitalism’s logic.  Faced with profit pressures, leading firms in core countries began to internationalize their operations in the mid-1980s by shifting production to the third world.  This internationalization process was shaped by the creation of cross border production networks or value chains.  Firms would divide the production of their goods into multiple segments and then locate the individual segments in different third world countries.

Sometimes, these leading firms built and operated their own overseas production facilities, directly controlling the entire production process.  More often, especially in electronics and telecommunications, pharmaceuticals, textiles and clothing, and automobiles, leading firms relied on “independent” partner firms to organize production under terms which still allowed them to direct operations and capture the majority of profits from sale of the final goods.

In broad brush, Japanese transnational corporations centered their product chains in China and several East Asian countries.  US transnational corporations centered theirs in China, Mexico and several Caribbean countries.  German transnational corporations centered theirs in China and several Central and Eastern European countries.   China’s role in the global economy grew explosively because it was a favorite location for production and final assembly for transnational corporations from all three core countries.

One consequence of this development was that both the US trade deficit, especially with China, and the Chinese trade surplus, especially with the US, grew large.  The chart below highlights this development, showing changes in size of the US and Chinese current account balances relative to their respective GDP.

us-and-china

The following chart looks just at the US trade balance and shows its dramatic decline beginning in the late 1990s.

us_trade_balance_1980_2014-svg

US manufacturers were not alone in benefiting from the shift in production to lower cost third world countries.  US retailers also gained as the lower costs allowed them to boost sales and profits.  And the US financial industry also gained.  The large deficits meant large dollar flows abroad which were returned for investment in financial instruments such as stocks and bonds.  Moreover, as conditions worsened for growing numbers of working people in the US (more on that below), many were forced to borrow to maintain their life style which further expanded financial activity and profits.  In addition, globalization has enabled many transnational corporations to shift profits to those countries with the lowest tax requirements, thereby further boosting their profitability and that of the financial sector.

Not surprisingly, the expansion of international production by US and other transnational corporations took its toll on US manufacturing workers.  As Dean Baker explains:

As can be seen (in the chart below), manufacturing employment stayed close to 17.5 million from the early 1970s to 2000. We had plenty of productivity growth over these three decades, but little net change in manufacturing employment, in spite of cyclical ups and downs. It was declining as a share of total employment, which almost doubled over this period. Then, as the trade deficit explodes, we see manufacturing employment plummet. Note that most of the drop is before the Great Recession in 2008.

jobs

In other words, while it is true that manufacturing employment as a share of total US employment had been falling for some time, the dramatic decline in the number of workers employed in manufacturing dates to the period of rapid expansion of third world-centered international production networks.

Jared Bernstein and Dean Baker summarize the results of two studies that examine some of the costs paid by US workers for this global restructuring:

Trade deficits, even in times of strong growth, have negative, concentrated impacts on the quantity and quality of jobs in parts of the country where manufacturing employment diminishes. . . . There is, for example, a lot of research confirming that deindustrialization in the Rust Belt is partly a result of the fact that America meets its domestic demand for manufactured goods by importing more than it exports. One oft-cited academic study found that imbalanced trade with China led to the loss of more than 2 million U.S. jobs between 1991 and 2011, about half of which were in manufacturing (which worked out to 17 percent of manufacturing jobs overall during that time).  Further, the economist Josh Bivens found that in 2011 the cost of imbalanced trade with low-wage countries cost workers without college degrees 5.5 percent of their annual earnings (about $1,800). Far from a small, isolated group, these workers represent two-thirds of the American workforce.

Unfortunately, many US workers have viewed globalization from a nation-state perspective, believing that third world workers, especially those in China and Mexico, are stealing their jobs.  In reality, few workers employed in these product chains have enjoyed meaningful gains.  For example, the number of manufacturing workers in China has also been falling.  And growing numbers of them are forced to work long hours, in unsafe conditions, for extremely low wages.  Firms operating in China as subcontractors for foreign multinational corporations are squeezed by these corporations to lower costs.  They in turn employ a variety of tricks to lower worker wages and intensify the work process.  And they do this with the approval of local government officials who want to maintain the production in their jurisdiction.

One common trick is to use employment agencies to provide them with students under so-called internship programs.  As students, they are not considered workers under Chinese labor law and thus are not covered by such things as minimum wage laws, overtime benefit laws, and pensions.  A recent study by China Labor Watch provides one example:

University students who worked summer jobs at one of China’s leading small-appliance factories were forced to live in cramped, ill-equipped dorm rooms, made to sweat through 12-hour days in a hot factory and then were stiffed on pay, according to a report by China Labor Watch and confirmed via interviews with students and the agents who hired them.

The 8,000-employee Cuori factory in Ningbo, south of Shanghai on China’s east coast, manufactures kitchen appliances, irons, heaters and vacuum cleaners under its own name and for such multinational firms as Cuisinart, Hamilton Beach and George Foreman. Stores in the U.S. carrying items made there include Walmart and Home Depot.

More often, the students are from technical schools and forced to accept jobs as part of their curriculum.  This is just one way that firms operating within international production networks seek to push down wages to maximize their own profits and satisfy the demands of transnational corporations for low cost production.

Seen from this perspective the problem facing US workers, and those in Japan and Germany who face similar competitive pressures and downward movement in their living and working conditions, is not job theft by workers in the third world, but the working of contemporary capitalism.   And this is the perspective needed to judge the likely policies of newly elected US president Donald Trump.

We already have two indicators that the Trump administration will do little to threaten contemporary globalization dynamics.  During the campaign, Trump made big news when he told Carrier, an air-conditioning and furnace manufacturer, that the company would “pay a damn tax” if it carried out its plan to lay off some 1400 workers and close one of its factories in Indianapolis and move its production to Mexico.  Later he said that if Carrier moved its Indianapolis production to Mexico he would, if President, levy a steep 35 percent tariff on any of its products coming back to the US from off-shore factories.

Well, on December 1, 2016, Trump announced the terms of the deal he worked out with Carrier.  Carrier would “keep” 800 workers in its Indianapolis factory.  But approximately 600 workers would still be laid off as the factory’s fan coil assembly line would still be moved to Mexico.  And in exchange, the state of Indiana would provide Carrier with a $7 million subsidy including tax breaks and training grants.  This is no attack on capitalist globalization.  And when the president of the union at the factory voiced his disapproval of the agreement, Trump tweeted out that the union needed to “Spend more time working-less time talking. Reduce dues.”

As for Trump’s claim that we will look carefully at NAFTA to see if it should be rewritten, the US Chamber of Commerce has already gone on record in defense of NAFTA but welcoming its revision to incorporate issues like e-commerce that were not included at the time of its approval. In line with the Chamber’s confidence, a former Chamber lobbyist who has publicly defended NAFTA and outsourcing more generally has just been appointed to Trump’s transition team dealing with trade policy.

In short, if we are going to build a strong economy that works for the great majority of US workers we need to build a movement that is critical not just of the Transpacific Partnership but the entire process of capitalist globalization.  Moreover, that movement needs to be built in ways that strengthen relations of solidarity with workers in and from other countries.  And, it is critical to start the needed educational process now, before the new administration has a chance to trumpet new misleading initiatives and confuse people about the real threat to our well-being.

The Trump Victory

The election of Donald Trump as president of the United States is the latest example of the rise in support for right-wing racist and jingoistic political forces in advanced capitalist countries.  Strikingly this rise has come after a sustained period of corporate driven globalization and profitability.

As highlighted in the McKinsey Global Institute report titled Playing to Win: The New Global Competition For Corporate Profits:

The past three decades have been uncertain times but also the best of times for global corporations–and especially so for large Western multinationals. Vast markets have opened up around the world even as corporate tax rates, borrowing costs, and the price of labor, equipment, and technology have fallen. Our analysis shows that corporate earnings before interest and taxes more than tripled from 1980 to 2013, rising from 7.6 percent of world GDP to almost 10 percent.  Corporate net incomes after taxes and interest payments rose even more sharply over this period, increasing as a share of global GDP by some 70 percent.

global-profit-pool

As we see below, it has been corporations headquartered in the advanced capitalist countries that have been the biggest beneficiaries of the globalization process, capturing more than two-thirds of 2013 global profits.

advanced-economies-dominate

More specifically:

On average, publicly listed North American corporations . . . increased their profit margins from 5.6 percent of sales in 1980 to 9 percent in 2013. In fact, the after-tax profits of US firms are at their highest level as a share of national income since 1929. European firms have been on a similar trajectory since the 1980s, though their performance has been dampened since 2008. Companies from China, India, and Southeast Asia have also experienced a remarkable rise in fortunes, though with a greater focus on growing revenue than on profit margins.

And, consistent with globalizing tendencies, it has been the largest corporations that have captured most of the profit generated.  As the McKinsey report explains:

The world’s largest companies (those topping $1 billion in annual sales) have been the biggest beneficiaries of the profit boom. They account for roughly 60 percent of revenue, 65 percent of market capitalization, and 75 percent of profits. And the share of the profit pool captured by the largest firms has continued to grow. Among North American public companies, for instance, firms with $10 billion or more in annual sales (adjusted for inflation) accounted for 55 percent of profits in 1990 and 70 percent in 2013. Moreover, relatively few firms drive the majority of value creation. Among the world’s publicly listed companies, just 10 percent of firms account for 80 percent of corporate profits, and the top quintile earns 90 percent.

bigger-the-better

Significantly, most large corporations have chosen not to use their profits for productive investments in new plant and equipment.  Rather, they built up their cash balances.  For example, “Since 1980 corporate cash holdings have ballooned to 10 percent of GDP in the United States, 22 percent in Western Europe, 34 percent in South Korea, and 47 percent in Japan.”  Corporations have often used these funds to drive up share prices by stock repurchase, boost dividends, or strengthen their market power through mergers and acquisitions.

In short, it has been a good time for the owners of capital, especially in core countries.  However, the same is not true for most core country workers.  That is because the rise in corporate profits has been largely underpinned by a globalization process that has shifted industrial production to lower wage third world countries, especially China; undermined wages and working conditions by pitting workers from different communities and countries against each other; and pressured core country governments to dramatically lower corporate taxes, reduce business regulations, privatize public assets and services, and slash public spending on social programs.

The decline in labor’s share of national income, illustrated below, is just one indicator of the downward pressure this process has exerted on majority living and working conditions in advanced capitalist countries.labor-share

Tragically, thanks to corporate, state, and media obfuscation of the destructive logic of contemporary capitalist accumulation dynamics, worker anger in the United States has been slow to build and largely unfocused.  Things changed this election season.  For example, Bernie Sanders gained strong support for his challenge to mainstream policies, especially those that promoted globalization, and his call for social transformation.  Unfortunately, his presidential candidacy was eventually sidelined by the Democratic Party establishment that continues, with few exceptions, to embrace the status-quo.

However, another “politics” was also gaining strength, one fueled by a racist, xenophobic, misogynistic right-wing movement that enjoyed the financial backing of the most reactionary wing of the capitalist class.  That movement, speaking directly to white (and especially male) workers, offered a simplistic and in its own way anti-establishment explanation for worker suffering: although corporate excesses were highlighted, the core message was that white majority decline was caused by the growing demands of “others”—immigrants, workers in third world countries, people of color, women, the LGBTQ community, Muslims, and Jews—which in aggregate worked to drive down wages, slow growth, and misuse and bankrupt governments at all levels.  Donald Trump was its political representative, and Donald Trump is now the president of the United States.

His administration will no doubt launch new attacks on unions, laws protecting human and civil rights, and social programs, leaving working people worse off.  Political tensions are bound to grow, and because capitalism is itself now facing its own challenges of profitability, the new government will find it has little room for compromise.

According to McKinsey,

After weighing various scenarios affecting future profitability, we project that while global revenue could reach $185 trillion by 2025, the after-tax profit pool could amount to $8.6 trillion. Corporate profits, currently almost 10 percent of world GDP, could shrink to less than 8 percent–undoing in a single decade nearly all the corporate gains achieved relative to world GDP over the past three decades. Real growth in corporate net income could fall from 5 percent to 1 percent per year. Profit growth could decelerate even more sharply if China experiences a more pronounced slowdown that reverberates through capital-intensive sectors.

future

History has shown that we cannot simply count on “hard times” to build a powerful working class movement committed to serious structural change.  Much depends on the degree of working class organization, solidarity with all struggles against exploitation and oppression, and clarity about the actual workings of contemporary capitalism.  Therefore we need to redouble our efforts to organize, build bridges, and educate. Our starting point must be resistance to the Trump agenda, but it has to be a resistance that builds unity and is not bounded in terms of vision by the limits of a simple anti-Trump alliance.   We face great challenges in the United States.

The Importance of Oregon’s Measure 97

Approval of Measure 97 is critical for the well-being of most Oregonians; its passage could also encourage efforts in other states to reverse the slashing of public capacities in the name of tax relief for profit-rich large corporations.

The national picture is well illustrated in a New York Times article.   As David Leonhardt explains:

Consider corporate taxes, which ultimately tend to be paid by the well-off, because they own the most stock. The official corporate rate is 35 percent, infamously higher than in any other advanced economy. Yet there are so many loopholes that companies often pay relatively little in tax.

The following chart highlights just how well corporations have done at avoiding taxes—and remember this shows the tax rate for all taxes paid (federal, state, local, and foreign) by corporations.

national-tax-mess

Here in Oregon, corporations have also done well.  In fact, according to the Anderson Economic Group, which does a yearly state-by-state study of the overall tax burden faced by businesses relative to their profits, Oregon has the lightest business tax burden in the country, and has secured that dead last position three years running.  The table below comes from its 2016 edition.

anderson-tax-burden

No wonder Oregon is short of funds and unable to deliver high quality early childhood and K-12 education, affordable health care, and critical senior services.

Measure 97 is designed to change this situation.  Although the Oregon initiative process limits the kinds of changes people can make to state law, the authors of this measure have crafted a well-designed change to the tax code.   The proposed measure makes one simple, but critical change to the state’s existing minimum tax code.

Here a bit of history is useful.  Oregon introduced a $25 minimum corporate tax in 1929.  The tax was lowered to $10 in 1931 and the rate remained unchanged until 2010.  By 2009, some two-thirds of C-corporations were paying just this $10 minimum.  As we can see below in the figure taken from an Oregon Center for Public Policy study, corporations currently pay only 6.7 percent of Oregon income taxes; thirty years ago it was 18.5 percent.

shrinking-oregon-corporate-taxes

The Great Recession, which caused the state deficit to explode, finally forced the legislature to act on tax reform.  It proposed, after consultation with the business community, a ballot measure which called for a new flat tax for all businesses and a new minimum tax schedule based on sales only for C-corporations. This measure, Measure 67, was approved by the voters.  The change, although helpful, was a modest one.  Most importantly, the new minimums remained set in unchanging dollar terms; were quite low; and were regressive in that the implicit minimum tax rate went down as sales went up.

Measure 97 seeks to remedy these shortcomings by changing only the minimum tax schedule, and only for the largest corporations.   Corporations with less than $25 million in in-state sales will see no change in their taxes.  Corporations with more than $25 million in in-state sales will now have to pay a new higher minimum tax equal to 2.5% of the amount of their sales above $25 million.

According to the Oregon Legislative Revenue Office, this new minimum will raise taxes on only 1051 corporations, less than one percent of all businesses operating in Oregon and less than 4 percent of all corporations operating in Oregon.  It will however raise a significant amount of money, some $3 billion a year; that amount will produce a 30 percent increase in the state’s general fund.  Moreover, as structured, the tax will fall heavily on the largest firms; more than half of the new revenue will come from the top 50 firms.  Finally, because the tax is based on sales, corporations will have little choice but to pay it.  They cannot fudge their sales figures like they can their profits, and it doesn’t matter where they produce as long as they sell in Oregon.  No wonder these large corporations don’t like the measure.

More money has been spent on the fight over Measure 97 than on any any other ballot measure in Oregon’s history.   According to the Oregonian:

With more than two weeks to go before the state’s Nov. 8 general election, groups against the corporate tax measure have contributed more than $22.5 million toward its defeat.

That surpasses the previous record of $21.2 million contributed in 2014 toward the defeat of Measure 92, the proposed GMO labeling measure. . . .

The group supporting the measure, Yes on 97, has raised more than $10.5. That puts the combined figure for spending on the measure at more than $33 million, which also eclipses the previous record of $29.6 million in total spending on a ballot measure. The prior record was also set during the contentious run-up to the GMO labeling measure election, in which it lost by fewer than 1,000 votes.

Among the biggest contributors to the No on 97 are retail corporations like Costco, Safeway, and Kroger, each of which has given almost $2 million.  More than 80 percent of the new revenue is predicted to come from large, multi-state corporations headquartered outside Oregon and not surprisingly it is these firms that are pouring in the most money to defeat the measure.

Their strategy is to scare working people, by claiming that the tax will be passed on to consumers through higher prices.  Little is said, of course, about the fact that the measure directs that the new money is to be spent on improving early childhood and K-12 education, expanding health care options, and funding senior services—all programs with high payoff for working people.  However, this fact aside, corporate threats of higher prices are merely that, empty threats.

There are three simple reasons why these large corporations will have little choice but to absorb the tax, and accept lower profits.  First, as mentioned above, very few firms will have their taxes raised by the measure.  Thus, these firms will be facing many firms that will not be subject to higher taxes. This is well illustrated by the following figure taken from an Oregon Center for Public Policy study.  If the firms affected by the new tax try to raise their prices, they risk losing market share.  In short, competitive pressures will make it difficult for them to raise their prices.

affected-firms-by-industry

Second, research shows that most large, out of state corporations employ national pricing strategies.  This means that they charge the same price for the same product in every state in which they sell.  In other words, there is no relationship between their pricing strategies and the various tax regimes they face in the different states in which they operate.  For example, the Oregon Consumer League examined prices charged by a number of major retailers.  What they found in the case of Target was typical:

Target is one of the biggest retailers in America, making $3.4 billion in net profits from $73.8 billion in sales in 2015. Target stores can be found in every state except Vermont. We selected one Target store in each state and looked up prices online for a sample of five items: a digital camera, laundry detergent, sunscreen, a box of Cheerios, and a spiral notebook. No matter which store was chosen, the prices did not change. . . . [P]rices remain consistent despite Target paying higher taxes in some states and much lower taxes in others.

Finally, there is the internet.  Most large firms offer on-line shopping.  Oregonians could easily check to see whether firms were raising local prices and if they found that to be true, simply order the same product on-line for the national price.  And, there is always Amazon, which is ready to sell anything to anyone.

In short, Measure 97 will raise much needed money that will be used to boost the quality of the state’s schools, health care, and senior services.  And it will do so by targeting the biggest and richest corporations, making them finally pay the taxes they have so far avoided.

For more on the importance of this measure and why I strongly support it you can read my article, Measure 97 corporate tax would put state on right track, which was recently published in the excellent local newspaper Street Roots.

 

 

 

 

Capitalist Globalization: Running Out Of Steam?

The 2016 edition of the Trade and Development Report (TDR 2016), an annual publication of the United Nations Conference on Trade and Development, is an important study of the changing nature of capitalist globalization and its failure to promote third world development.

The post-1980 period was marked by an explosion of transnational corporate activity, with investment increasingly taking place in the third world, especially Asia.  The resulting investment created a system of cross border production networks in which workers in third world countries produced and assembled parts and components of increasingly advanced manufactures under transnational capital direction for sale in developed country markets.

Mainstream economists supported this process, arguing that it would promote rapid industrialization and upgrading of third world economies and the eventual convergence of third world and advanced capitalist living standards.  However, the TDR 2016 makes the case that the globalization process appears to have run its course and that mainstream predictions were not realized.

Capitalist globalization under pressure

The TDR 2016 shows that the post-2008 slowdown in developed capitalist country growth has led to a significant downturn in third world exports and economic activity.  The following charts show that while international trade has long grown faster than global output, the ratio grew dramatically bigger over the first decade of the 2000s.  This was in large part the result of the expansion of cross border production networks.  This explosion of trade also brought ever expanding trade imbalances.

trade-trends

But, as the above charts also show, globalization dynamics appear to have lost momentum.  According to the TDR 2016:

International trade slowed down further in 2015. This poor performance was primarily due to the lackluster development of merchandise trade, which increased by only around 1.5 per cent in real terms. After the roller-coaster episode of 2009–2011, in the aftermath of the global financial and economic crisis, the growth of international merchandise trade was more or less in line with global output growth for about three years. In 2015, merchandise trade grew at a rate below that of global output, a situation that may worsen in 2016, as the first quarter of the year showed a further deceleration vis-à-vis 2015.

This loss of momentum has hit the third world, which has become ever more export-dependent, especially hard. As the following table shows, the growth rate of third world exports has dramatically slowed, and is now below that of the developed capitalist countries.  East Asian export growth actually turned negative in 2015.

table-1

This slowdown in trade has been accompanied by growing capital outflows from the third world, again especially Asia, as shown in the following chart.

capital-flows

The combination of developed country stagnation and dramatically slowing international trade has begun to stress the logistical infrastructure that has underpinned capitalist globalization dynamics.  This is well illustrated by Sergio Bologna’s description of the consequences of Hanjin’s bankruptcy:

The world’s seventh largest shipping company, the Korean company Hanjin, went bankrupt. Overburdened by $4.5-billion in debt, it has not been able to convince the banks to continue their support.

As a matter of fact, it did not convince the government of South Korea, because the main financier of Hanjin is the Korean Development Bank, a public institution, which is also struggling with the critical situation of the other major shipping company, Hyundai Merchant Marine (HMM), and the two Korean shipyards, STX Offshore & Shipbuilding and Daewoo. It may sound like a mundane administrative issue, but imagine what it means to have a fleet of about 90 ships, loaded with freight containers valued at $14-billion, roaming the seas because if they touch a port their loads are likely to be seized at the request of creditors.

In fact, the Daily Edition of the Lloyd’s List dated September 13th . . . reported that 13 vessels had been detained. Other ships are being held in different ports, waiting for judiciary sentences. Others are at anchor and maybe had to refuel. Not to mention the 1,200-1,300 crew members who are not able to find suppliers willing to sell them a can of tuna or a bottle of water. In a Canadian port, the crew had to be assisted by the mission Stella Maris.

The intertwining of the ramifications of this problem is impressive. Hanjin must face legal proceedings at courts in 43 countries. For starters: Most of the ships are not owned by Hanjin, and those it owns, to a large extent, are not worth much. Sixty per cent of the fleet is leased, and Hanjin has not been paying the leases for a long time. This threatens to bankrupt old-name companies like Hamburg’s Peter Dohle, the Greek Danaos, and the Canadian Seaspan; there are about 15 companies who leased their ships to Hanjin, but in terms of loading capacity, the first four add up to more than 50 per cent.

Then there are the ports and other infrastructure service providers. The ports are owed fees for services (towing, mooring); the terminals, for load/unload operations to Hanjin ships on credit; the Suez Canal has not been paid the passage tolls and today won’t let the Hanjin ships through; in addition, the onboard suppliers, recruiting agencies of the crews, the ship management firms. The list does not end here, it has just begun. Because the bulk of creditors are thousands of companies, freight forwarders and logistics operators who have entrusted their merchandise to Hanjin, around 400,000 containers (the total capacity of the Hanjin fleet is estimated at 600,000 TEUs), goods that are stuck on board.

Why did this happen? Why did it have to happen? . . .

Because for years, the shipping companies have been transporting goods at a loss. They have put too many ships into service and they continued to order increasingly larger ships at shipyards. The ships competed fiercely for the orders and built the ships at bargain prices, although they are technological jewels. With the increase in freight capacity, freight rates plummeted, volumes grew but the income per unit of freight transported decreased. Then, China slowed exports, creating the perfect storm. . . .

And now? How many of the 10 to 15 most important companies still active on the market are zombie carriers?

The false promise of capitalist globalization

Critically, the globalization process has been aided by labor repression.  The transnational corporate drive for market share encouraged state policies designed to hold down labor costs.  And the resulting decline in wage demand reinforced the pursuit of exports as the “natural” engine of growth.  As TDR 2016 explains:

those countries that did exhibit increases in their global share of manufacturing exports did not show similar increases in wage shares of national income relative to the global average. . . . This suggests that increased access to global markets has typically been associated with a relative deterioration of national wage income compared with the world level.

The following chart illustrates the global ramifications of the globalization process for worker earnings.wage-share

As for convergence, the TDR 2016 compared the performance of third world economies relative to that of the United States using several different criteria.  The chart below looks at the ratio of per capita GDP of select countries and country groups relative to that of the United States.  We see that Latin America and the Caribbean and Sub-Saharan Africa have actually lost ground since the 1980s.  This is especially striking since the US growth rate also slowed over the same period.  Only in Asia do we see some catch-up, and outside the so-called first-tier NIEs and China the gains have been small.

comparisons-with-us

In fact, as the TDR 2016 explains: “The chances of moving from lower to middle and from middle- to higher income groups during the recent period of globalization show no signs of improving and have, if anything, weakened.”

This conclusion is buttressed by the following table which shows “estimate chances of catching up over the periods 1950–1980 and 1981–2010.”  The United States is the target economy in both periods with countries “divided into three relative income groups: low (between 0 and 15 per cent of the hegemon’s income), middle (between 15 and 50 per cent) and high (above 50). The table reports transition probabilities for the two sub-periods and the three income levels.”

catch-up

The TDR 2016 drew two main conclusions from these calculations:

First, convergence from the low- and the middle-income groups has become less likely over the last 30 years (1981–2010) relative to the previous period (1950–1980). As reported in the table, the probability of moving from middle- to the high-income status decreased from 18 per cent recorded between 1950 and 1980 to 8 per cent for the following 30 years. Analogously, the probability of catching up from the low- to the middle-income group was reduced approximately by the same factor, from 15 per cent to 7 per cent.

Second, and perhaps more strikingly, the probability of falling behind has significantly increased during the last 30 years. Between 1950 and 1980 the chances of falling into a relatively lower income group amounted to 12 per cent for middle-income economies and only 6 per cent for high-income countries.  These numbers climbed to 21 per cent and 19 per cent respectively in the subsequent period.

Uncertain times lie ahead

In short, globalization dynamics have restructured national economies in ways that have enriched an ever smaller group of transnational corporations.  At the same time, they have set back national development efforts with few exceptions and generated serious contradictions that are largely responsible for the stagnation and downward pressures on working and living conditions experienced by the majority of workers in both advanced capitalist countries and the third world.

While globalization dynamics have lost momentum the economic restructuring it achieved remains in place.  And to this point, dominant political forces appear to believe that they can manage whatever economic challenges may appear and thus remain committed to existing international institutions and patterns of economic activity.  Whether they are correct in their belief remains to be seen.  As does the response of working people, especially in core countries, to their ever more precarious conditions of employment and living.

EPI Data Library On State Of Working America

The Economic Policy Institute (EPI) has just published an on-line data library on “The State of Working America.”  Lots of good information and easy to use.

As EPI explains:

Data on wages is reported by decile, sex, race, and education, and will be updated annually.

Employment data is updated monthly and includes the unemployment rate, the long-term unemployment rate, the underemployment rate, the labor force participation rate, and the employment-to-population ratio—with previously not publicly accessible demographic data.

The Data Library also contains EPI’s unique wage gap analyses—such as the black-white wage gap and the college wage premium.

The data goes back to the 1970s and will help you answer labor force questions, ask new ones, and find solutions to the most pressing issues of our time: stagnant wages, and income and wealth inequality.

The following, on the black-white wage gap, is an example of what you can find on the site:

epi-data

As you can see, inflation-adjusted white median hourly wages have slowly but steadily grown over the last few years, although they still remain below their 2009 level.  The same is not true for black median wages.  As a consequence, the black-white median hourly wage gap has been growing.