Last Updated Oct 28, 2011 5:34 PM EDT
- Why aren't companies spending?
When asked privately, business leaders in large companies do not generally cite fear of regulation or high taxes as a reason for not spending. Indeed, why should they? Due to extensive loopholes, created by decades of lobbying, many large corporations do not pay any taxes at all. As for government regulations, many were written specifically to protect large companies from competition.
Even business leaders in small companies aren't all that concerned with regulation or taxes. As New York Times columnist Paul Krugman points out in today's op-ed:
When McClatchy Newspapers recently canvassed a random selection of small-business owners to find out what was hurting them, not a single one complained about regulation of his or her industry, and few complained much about taxes.The REAL reason that companies in the U.S. aren't spending is that they're well aware that consumers aren't buying things. Because there's vastly decreased demand for the end product, it doesn't make sense to spend upstream. That leads us to the next question:
- Why aren't consumers buying?
Obviously, people who are unemployed are going to buy fewer things. And even if currently employed, people aren't going to spend as much if they're afraid of losing their jobs. Business leaders aren't stupid. They can see what's happening and they're wisely taking a protective stance until such time as people start buying things again.
And that's not going to happen until such time as there's less unemployment. Which leads to the next question:
- Why is unemployment so high?
But there's another way to look at the situation: that the problem isn't that manufacturing costs are too high in the United States; it's that the manufacturing costs elsewhere are too low.
In this blog, I've repeatedly pointed out that many of the products supplied by U.S. companies have outsourced supply chains that are dependent upon appalling labor practices (including slave labor and child labor) and environmental pollution.
Some people believe that the best way to "put America to work" is to emulate those appalling conditions in the United States. They want to tear down environmental laws, eliminate government regulation, abolish labor unions, and generally force wages downward in order to make the U.S. "more competitive."
However, as former labor secretary Robert Reich points out in another New York Times op-ed, there's another solution: the United States could emulate Germany rather than China.
Despite having problems spawned by other European economies, Germany has lower unemployment than it had in 2007, before the crash. Furthermore, German wages have increased by 30% since 1985 (as opposed to a measly 6% in the U.S.), partly as the result of having strong labor unions. As a result, economic gains have been spread more widely among the population, resulting in more economic activity.
But won't that make U.S. manufacturing even less "competitive"?
Only if the U.S. continues to support the absurd notion that "free trade" is possible when there's not a level playing field. Reich points out that corporations, in order to do business in the United States, could (and should) be required to adhere, in their outsourcing operations, to the same regulations that keep U.S.-based firms from exploiting workers.
Rather than destroying labor unions and environmental regulation in the United States, it might make more sense simply to make it illegal to import products from any country that forbids the formation of labor unions or allows massive degradation of the environment.
Here's another way to see it: want to see Apple relocate iPad manufacturing to Detroit?
You've got two choices. The first is to resolve yourself to seeing U.S. manufacturing workers earn $1.50 an hour while turning Lake Michigan into a toxic chemical sewer.
The second choice would be to make Apple liable to clean up any environment disasters that occur anywhere in its supply chain and responsible for completely reimbursing (with penalties) any workers in the supply chain found to be working under conditions unacceptable in the United States.
Would the iPad cost more if you followed the second choice? Very likely. But there would be more people in the United States who could afford one, because there would higher employment and higher wages. And that leads to my final question:
- Why is "imitate China" the only strategy on the table?
These same corporations could ship their foreign-made products back to the USA and pocket the difference in the cost of production. Corporate stock prices would soar, as would corporate salaries -- and dividends, to make shareholders happy and supportive of a corporate policy of moving out of the USA. Under globalization, America's investor class could and did get rich by the abandonment of America's working class.Because the investor class is, well..., invested in making sure that wealth continues to concentrate at the top, they're not willing to even consider a strategy that might result in the working class getting relatively more.
The problem with this strategy is that it's incredibly short sighted, because even the wealth of the super-rich depends upon there being a healthy economy. As Reich points out: "those at the top would be better off with a smaller share of a rapidly growing economy than a large share of one that's almost dead in the water."
So here's the truth: labor unions -- when properly protected from the illusion of "free trade" -- push wages up and make consumers better able to buy. This, in turn, increases demand, which ripples through B2B suppliers, causing more spending and higher sales.
In short, labor unions in the manufacturing sector are good for sales, and everybody, including the wealthy, would ultimately be better off if the private sector unions in the United States had remained strong, and if the government had tried to protect U.S. interests, rather than promoting the interests of multinational corporations and the investor class.
NON-U.S. READERS: Sorry for posting about the economic situation in the United States. However, there's some value in being a reverse object lesson. Don't let what happened here, happen in your country. The U.S. may no longer be the "land of opportunity", but that doesn't mean that your country has to make the same mistakes.
NOTE: Need to make sales, even in a weak economy? My new book How to Say It: Business to Business Selling provides easy step-by-step tutorials based upon the teachings of the world's top sales experts. Now available for purchase at: