Archive for the ‘Corporations’ Category
The Wall Street Journal had an interesting article about income inequality.
What follows is a chart from the article which shows that average income for the bottom 90% of families actually fell by over 10% from 2002-2012 while the average income for families in all the top income groups grew. The top 0.01% of families actually saw their average yearly income grow from a bit over $12 million to over $21 million over the same period. And that is adjusted for inflation and without including capital gains.
What was most interesting about the article was its discussion of the dangers of this trend and the costs of reversing it. In brief, the article noted that many financial analysts now worry that inequality has gotten big enough to threaten the future economic and political stability of the country. At the same time, it also pointed out that doing anything about it will likely threaten profits. As the article notes:
But if inequality has risen to a point in which investors need to be worried, any reversal might also hurt.
One reason U.S. corporate profit margins are at records is the share of revenue going to wages is so low. Another is companies are paying a smaller share of profits on taxes. An economy where income and wealth disparities are smaller might be healthier. It would also leave less money flowing to the bottom line, something that will grab fund managers’ attention.
Any bets how those in the financial community will evaluate future policy choices?
The dominant firms in the U.S. and other major capitalist counties are happily making profits. They just aren’t interested in investing them in new plant and equipment. Rather they prefer to use their earnings to acquire other firms, reward their managers and shareholders, or increase their holdings of cash and other financial assets.
The chart below, taken from a Michael Burke blog post in the Irish Left Review, shows trends in both U.S profits (defined by Gross Operating Surplus which is calculated by subtracting the value of intermediate inputs, employee compensation, and taxes on production from earnings) and investment (defined by Gross Fixed Capital Formation).
As you can see the increase in profits (in orange) has swamped the increase in investment (in blue) over the relevant time period; in fact investment in current dollars has actually been falling.
Looking at the ratio between these two variables helps us see even more clearly the growth in firm reluctance to channel profits into investment. The investment ratio (investment/profits) was 62% in 1971, peaked at 69% in 1979, fell to 61% in 2000 and 56% in 2008, and dropped to an even lower 46% in 2012.
According to Burke, “If US firms investment ratio were simply to return to its level of 1979 the nominal increase in investment compared to 2012 levels would be over US$1.5 trillion, approaching 10% of GDP.”
The same dynamic is observable in the other main capitalist economies:
In 1995 the investment ratio in the Euro Area was 51.7% and by 2008 it was 53.2%. It fell to 47.1% in 2012. In Britain the investment ratio peaked at 76% in 1975 but by 2008 had fallen to 53%. In 2012 it was just 42.9% (OECD data).
So what are firms doing with their money? As Burke explains:
The uninvested portion of firms’ surplus essentially has only two destinations, either as a return to the holders of capital (both bondholders and shareholders), or is hoarded in the form of financial assets. In the case of the US and other leading capitalist economies both phenomena have been observed. The nominal returns to capital have risen (even while the investment ratio has fallen) and financial assets including cash balances have also risen.
So, with firms seeing no privately profitable productive outlet for their funds, despite great societal needs, their owners appear content to reward themselves and sock away the rest in the financial system. In many ways this turns out to be a self-reinforcing dynamic. No wonder things are so bad for so many.
The following post by the economist Michael Taft appeared in the Irish Left Review. Although Taft is addressing an Irish audience, I think his discussion of Swiss initiatives against inequality should be of interest to many Americans as well.
As the [Irish] Government does its post-mortem on the Seanad referendum [to abolish the upper house of the Irish parliament], Switzerland is gearing up for a vote in November on a referendum that is truly reforming. It’s called the 1:12 initiative. It proposes that monthly senior executive salaries cannot exceed 12 times the pay of the lowest paid in a firm. And it proposes that this be put into law. This is pretty heavy in a country which is home to major financial institutions and multinationals.
Imagine the impact here. In the Bank of Ireland, the CEO Richie Boucher has a salary of €843,000 (no, that’s not a typo). A bank clerk on starting pay is approximately €22,000. Under this law one of two things would have to happen: either Richie’s salary would have to fall by three-quarters – to €264,000 a year. Or the starting pay would have to rise to €70,250. I leave you to decide which is more likely to happen, if either.
But there is more going on in Switzerland than just a pay ratio debate. Earlier this year, the people voted on a referendum that put controls on executive pay and gave shareholders’ more rights over executive compensation. There has been growing anger over excessive salaries and the bonus culture among Swiss companies. The referendum passed overwhelmingly despite the fact that opposing business lobbies outspent the ‘yes’ side by 40-1.
Now there are three more referenda coming down the line. First, there is a proposal to increase the minimum wage to approximately €18 per hour. Even in an economy with high living costs this is a hefty rise. Proportionately, for Ireland, this would amount to somewhere between €11 and €12 per hour (using the median wage as the comparison).
There is a referendum on a basic income – guaranteeing every adult a basic income of €24,500 a year. Again, even factoring in living standard difference, this is hefty sum, designed to ensure a safety net for everyone.
And then there’s that 1:12 initiative – designed to do two things: put upward pressure on low-pay and downward pressure on excessive pay. As you can imagine, the business lobbies and the Government are predicting all manner of plagues and pestilence if this referendum succeeds. First off, there is the claim that businesses will leave Switzerland if this is passed. There is something in that. Multi-national capital can be relatively mobile and many companies can punish a people for taking democratic decisions that companies don’t like. This is not the case for all companies, though but the blackmail threat permeates the body politic.
A second argument put forward by the business lobbies is that they will just avoid the law by breaking up their companies into smaller units. In this scenario, all the low-paid will be put into one sub-company and the high-paid into another. This will mean that each sub-company can maintain the 1:12 ratio. There is no doubting that companies get up to all sorts of activities to avoid democratic interventions (the ever-vigilant WorldbyStorm highlight Ryanair’s byzantine employment contracts to prevent employees from collective bargaining). However, this threat could be easily dealt with by legislation that treats sub-companies that sell exclusively into a main company as part of the main company itself.
Could such an initiative work here? Eventually, but as always we must treat all such initiatives as part of a process that must be rooted in today’s reality. We have an extremely poor indigenous sector and an over-reliance on foreign capital for value-added employment and participation in the global market. A 1:12 initiative would immediately become hostage to multinational blackmail (this will cost jobs, etc.) and with the economy still in a domestic-demand recession such an initiative would understandably raise fears.
However, this is not to say we put this on some shelf to be dealt with sometime in some future (like Seanad reform). A first step would be to require all companies to publish their company accounts – profits, executive pay, etc. Publicly-listed companies are already required to do this but many private unlimited companies (Dunnes Stores) and foreign branches (Tesco) don’t have to. There is no rationale why some companies are required to publish and others are not. Freedom of economic information would be a first step in creating a more informed public and efficient market relationships.
Second, we could take up the idea put forward by ICTU sometime ago – that wages that exceed a certain ratio should not be deductible for income tax purposes. If, for instance, there was a 1:12 pay ratio in a company, then the company would have to pay corporate tax on incomes that exceed the upper threshold. Taking the Richie Boucher example, Bank of Ireland would have to pay tax on that portion of his salary that exceeded €264,000. We may not be in a position now to stop excessive pay, but we certainly don’t have to subsidise it with taxpayer money.
So we could take positive concrete steps. However, let’s not lose the overall sight of what’s happening in Switzerland. There is a democratic revolt against high pay and low pay: limitations on executive pay, increased minimum wage, and a basic income. There is a lively debate about equality and inequality. There are concrete proposals and there will be votes. But even if the 1:12 initiative fails, that’s not the end of it.
Of the many issues that we will need to address on the other side of austerity (and there are many: employment, investment, indigenous enterprise development, universal public services, social protection, etc.) there is the issue of reducing inequality, creating strong social protection floors and raising income floors.
What the Swiss are debating is how to raise that floor while toppling a few golden towers. This is what we should start debating. And the sooner the better.
Interesting Note: Despite all the blackmail threats and warnings of doom about the 1:12 initiative, recent polls show it is too close to call: 36% for yes, 38% for no, with the rest undecided.
Profits are definitely up. In fact, as Doug Henwood reports in a post on his Left Business Observer blog, corporations are “flush with cash”:
At last count, U.S. nonfinancial corporations had nearly $16 trillion in financial assets on their balance sheets, almost as much as they have in tangible assets. The gap between internal funds available for investment and actual capital expenditures—what’s called free cash flow—is very wide at around 2% of GDP. That’s down from the high of 3% set a couple of years ago, but sill higher than at any point before 2005.
So, what are corporations doing with all their cash? Well, definitely not investing in new plant or equipment.
Quoting Henwood again:
What matters for the accumulation of real capital is net investment—the gross amount invested every year less the depreciation of the existing capital stock. We’ve just gotten numbers for 2012, and they’re remarkably low. Private sector net nonresidential fixed investment (as a percent of net domestic product, or NDP) fell below 1% in 2009. It’s recovered some, to just over 2% last year, but that’s half the 1950-2000 average, and lower than any year between 1945 and 2009. We won’t have 2013 numbers until August of next year, but it looks like they’ll stay in this depressed neighborhood.
Instead of investing, “corporations are shoveling cash out to their shareholders. Through takeovers, buybacks, and traditional dividends, nonfinancial corporations are transferring an amount equal to 5% of GDP to their shareholders these days—again, down some from recent highs, but very high by historical standards.”
These trends help explain how the top 1% of income earners were able to capture 95% of all the income gains over the period 2009 to 2012. They also help explain why continued stagnation appears the most likely outcome for the years ahead.
As the Wall Street Journal reports:
Four years into the economic recovery, U.S. workers’ pay still isn’t even keeping up with inflation. The average hourly pay for a nongovernment, non-supervisory worker, adjusted for price increases, declined to $8.77 last month from $8.85 at the end of the recession in June 2009, Labor Department data show.
In other words, as the chart below illustrates, the great majority of workers are experiencing real wage declines over this expansion.
Growth also remains sluggish, increasing “at a seasonally adjusted annual pace of less than 2% for three straight quarters—below the prerecession average of 3.5%.” But by intensifying the pace of work and reducing the pay of their employees, corporations have been able to boost their profits despite the slow growth.
The following chart from an Economic Policy Institute study shows the continuing and growing disconnect between productivity and private sector worker compensation (which includes wages and benefits) using two different measures of compensation.
As the Economic Policy Institute study explains, “there has been no sustained growth in average compensation since 2004. The stagnation began even earlier, in 2003, when considering wages alone. Since 2003, wages as measured by both the ECI and the ECEC (not shown) have not grown at all—a lost decade for wages.”
The point then is that we need a real jobs program, one that is designed to create new meaningful jobs and boost the well-being of those employed. Government efforts to sustain the existing expansion have certainly been responsive to corporate interests. It should now be obvious that such efforts offer workers very little.
While U.S. cable and cell companies like to boast of the speed and affordability of their internet services, we are far from the top on either count.
According to the State of the Internet Report First Quarter 2013, which provides data on average and peak connectivity speeds throughout the world, the U.S. trails South Korea, Japan, Hong Kong, Switzerland, the Netherlands, Latvia, and Sweden.
The figure below shows that the U.S. leads in the Americas, with an average connection speed of 8.6 Mbps (megabites per second).
As we see next, South Korea, Japan, and Hong Kong have much faster average connection speeds.
And as the figure below shows, Switzerland, Netherlands, Latvia, and Sweden–although trailing the leading Asian countries–also have faster average connection speeds than the United States.
U.S. internet companies generally embrace these rankings, which come from Akamai–a content delivery network–despite the U.S. eighth place finish. The reason is that the U.S. looks far worse in other rankings.
Susan Crawford, in her excellent critical review of U.S. cable and wireless companies, shares the following:
Pando Networks, another content delivery network (CDN), puts US high-speed Internet access speed at 26th worldwide, at about a quarter of the speed of world leader South Korea. According to PandoNetworks, Eastern European nations dominate the top of the list (Romania, Bulgaria, and Ukraine), with speeds that are about double or triple those in the US.
Ookla, which pulls its figures from Speedtest.net, a popular self-indexing site, and reports them on NetIndex.com, puts the US at 33rd, behind the EU average, and well behind the UK, the Nordic countries, most of Eastern Europe, and Japan and South Korea. Unlike Akamai, Ookla employs a method that aims at “filling the pipe” of a user initiating a test. (Akamai’s tests don’t measure the unused capacity of fast connections, and tend to collapse the differences between fast and super-fast connections.)
M-Lab also puts the US somewhere in the middle, slower than Belgium, Denmark, Finland, Germany, Hungary, Japan, Luxembourg, Netherlands, Norway, Sweden, and Switzerland.
If we look at just Netflix subscribers, and focus on just streaming video speed, the US sits just ahead of the UK and Ireland, well ahead of Mexico, but behind all of the Nordic countries. (Netflix reports on only these countries).
As for cost, as Betsy Isaacson explains, the pricing strategy of U.S. cable providers does little to encourage the spread of high-speed broadband in the United States:
Comcast, the nation’s largest cable provider, claims it’s capable of providing 3Gbps broadband — but its fastest service currently on the market is $320 a month for 305Mbps. Verizon, meanwhile, has just announced its fastest FiOS ever, 500Mbps for $310 a month. Compare that to Hong Kong, where consumers can get 500Mbps for $25 a month, or Seoul, where the same speed is priced at $30 a month.
The gap between the United States and the other leading countries continues to grow in large part because U.S. cable providers have been unwilling to invest in establishing and connecting U.S. households and businesses to ultra fast symmetrical fiber networks. In the words of Crawford:
An American’s only choice when he or she wants to buy a high-capacity connection to the Internet, in most parts of the country, is his or her local cable monopolist.
The large cable distributors in America – who never compete directly with one another – have clearly become the nation’s monopoly suppliers of terrestrial wired connections, each in its own footprint. Their market power is unrestrained. They can charge whatever they want for whatever services they choose to provide. They have little incentive stemming from either market pressure or oversight to upgrade to symmetrical fiber, which is the world standard, or to charge reasonable prices for world-class access.
Meanwhile, our former telephone companies, Verizon and AT&T, have retreated almost entirely to wireless services – complementary, non-threatening to the cable guys, and highly lucrative. . . .
(T)he relevant market for everyone is (or should be) high-capacity, low-latency, symmetrical fiber connections to homes and businesses of at least 100Mbps. That’s what they have in South Korea, Japan, Sweden, and (soon) Australia and China. Right now, the vast majority of Americans are stuck with the cable guys’ product, which is very expensive (three or four times as expensive for the same download services as in other countries) and second-best (because it doesn’t provide symmetrical, or equal, upload capacity). It’s not fiber, and it’s under the complete price/service control of individual companies that, again, are subject to neither oversight nor competition and have no incentive to make the upgrade to fiber.
The United Nations Conference on Trade and Development (UNCTAD) recently examined the causes of rising inequality in developing and developed countries. In what follows I discuss its analysis of the developed country experience, particularly the United States.
As its 2012 Trade and Development Report (TDR) notes, economists are well aware that the post-1980 growth in inequality has been accompanied by accelerating technological change and globalization. Studies in the 1990s attempted to determine whether technological change or globalization best explained the rising inequality over the 1980s and early 1990s. The eventual consensus was that the primary cause was skill-biased technological change. In other words, as production became more complex, businesses needed workers with ever greater skill levels and were willing to pay a premium to attract them. This boosted income inequality and the only reasonable response was greater skill acquisition by lower paid workers.
Drawing on more recent work, the TDR argues that this consensus needs to be reconsidered. It finds that the post-1995 inequality explosion is best explained by globalization, or more specifically transnational corporate globalization strategies.
According to the TDR (page 83):
The new aspect of income inequality in developed countries – also termed “polarization” – concerns employment in addition to wages. The trade-inequality debate in the early 1990s focused on the divergence between the wages of high-skilled and low-skilled workers. However, the more recent period has been characterized by a very different pattern of labor demand that benefits those in both the highest-skill and the lowest- skill occupations, but not workers in moderately skilled occupations (i.e. those involved in routine operations). The moderately skilled workers have been experiencing a decline in wages and employment relative to other workers.
To highlight polarization trends, the TDR first “decomposes wage developments of earners between the 90th (top) and the 10th (bottom) percentiles” which “allows a comparison of the ratio of wages at the 90th percentile with that of the 50th percentile (the 90–50 ratio)” as well as a comparison of “the ratio of wages at the 50th percentile with that of the 10th percentile (the 50–10 ratio).”
The chart below shows that in the United States the 90-50 ratio has steadily grown, reflecting increased earnings for those at the top relative to those in the middle of the income distribution. However, beginning in the 1980s, the 50-10 ratio largely stopped growing. In other words it is the hollowing out of the income distribution that underpins current inequality trends. And, according to UNCTAD, this hollowing out is largely due to the destruction of middle income jobs.
As the next chart shows, this polarization of employment has taken place in almost every developed capitalist country, which helps to explain the almost universal growth in income inequality in the developed capitalist world.
UNCTAD argues that this development is primarily the result of the growth in transnational corporate controlled cross-border production networks. Competition between leading transnational corporations drove them to find new ways to lower costs. Their preferred strategy has been to divide their production processes into discrete segments and then locate as many segments as possible in different low-wage countries. They control their respective networks through direct ownership of the relevant foreign affiliates or increasingly through their control over the relevant technologies and/or distribution channels.
These networks have helped leading transnational corporations increase their profits. Their operation has also transformed developed country economies, reducing mid-level jobs and earnings as well as increasing dependence on imported parts and components as well as final goods and services.
The growth in production networks has boosted the share of developing countries in world exports from 25% in the 1970s and 1980s to 40% in 2010. China, of course, is the leading production platform for most transnational corporations. One way to highlight the growth in global production and its consequences for the U.S. economy is to chart the growth in merchandise imports from low-wage economies, which are defined as those countries with a per capita income less than 5% of that of the United States before 2007. “The resulting group of 82 developing and transition economies includes many small economies but also some of the large economies in Asia, especially China, as well as countries such as India, Indonesia, and the Philippines.”
As the above chart shows, most of the world has been affected by this development, although the rise in U.S. imports from low-wage countries, primarily from China, stands out. Having said that, it is worth emphasizing that most U.S. imports from China are produced by foreign owned firms operating in China–often under the direction of U.S. transnational corporations–not Chinese companies; Apple products are a good example.
This development means that the polarization in U.S. income and employment is now structurally rooted in the operation of the U.S. economy. As the TDR points out (page 91):
Sector-specific evidence for the United States for the period 1990–2000 indicates that all of the four sectors with the largest growth in productivity (computers and electronic products, wholesale trade, retail trade and manufacturing, excluding computers and electronic products) experienced positive average employment growth, adding a total of nearly 2 million new jobs. By contrast, the sectors with the largest productivity gains during the 2000s experienced a substantial decline in employment. Computers and electronic products, information, and manufacturing (excluding computers and electronic products), accounted for a sizeable share of overall productivity growth, but employment fell, with a loss of more than 6.6 million jobs, about 60 per cent of which occurred before the onset of the Great Recession of 2008.
In other words, strengthening the corporate bottom line will do little to reverse income and employment polarization. As the TDR explains (page 80):
The evidence presented in the chapter indicates that, in developed countries, the effect of the forces of globalization on income inequality since the early 2000s is also largely due to behavioral changes in the corporate sector in response to greater international competition. Companies have given less attention to upgrading production technology and the product composition of output through productivity enhancing investment with a long-term perspective; instead, they have increasingly relied on offshoring production activities to low-wage locations, and on seeking to reduce domestic unit labor costs by wage compression. This trend has been associated with a polarization of incomes in developed countries. For the United States, evidence suggests that a new mode of corporate governance aimed at the maximization of shareholder value is pushing corporations to maintain external competitiveness through wage repression and offshoring, and to increase profits through, often speculative, financial investments, rather than by boosting productive capacity.
Despite the declining rate of unemployment—-it fell to 7.4% in July, the lowest level since December 2008—it is clear that economic trends, especially the rate and nature of job creation, are far from desirable.
As the Wall Street Journal explains:
The U.S. labor market’s long, slow recovery slowed further in July—and many of the jobs that were created were in low-wage industries.
Employers added a seasonally adjusted 162,000 jobs in July, the fewest since March, the Labor Department said Friday, and hiring was also weaker in May and June than initially reported. Moreover, more than half the job gains were in the restaurant and retail sectors, both of which pay well under $20 an hour on average. . . .
The falling jobless rate reflects to some degree a pace of hiring that, though slow, has remained steady over the past year even as the broader economy has grown in fits and starts. The U.S. has added an average of 192,000 nonfarm jobs per month so far this year, hardly a robust pace but more than enough to keep up with population growth.
But the drop in the unemployment rate is also the result of a job market that remains too weak to draw back workers who have dropped out of the labor force. Some 6.6 million workers say they want a job but don’t count as unemployed because they aren’t actively looking, a number that has barely budged in the past year. The number of Americans working or looking for work fell by 37,000 in July; as a share of the population, the labor force remains near a three-decade low. . . .
President Barack Obama has stressed the need for good jobs, including during a visit this past week to an Amazon.com Inc. facility in Chattanooga, Tenn., where he called for “a better bargain for the middle class.”
The day before the president’s visit, the Internet retail giant said it was adding more than 5,000 full-time jobs in its distribution centers across the country. Many of the jobs pay $11 an hour or less, although the company said workers will qualify for health insurance and other benefits, including stock grants and tuition subsidies.
“In our viewpoint these are great jobs,” Amazon spokeswoman Kelly Cheeseman said.
But the proliferation of low-wage jobs is leading to anemic growth in incomes. Average hourly wages were up by less than 2% in July from a year earlier, continuing a pattern of weak wage growth in the recovery. A broader measure of income released by the Commerce Department on Friday showed that inflation-adjusted incomes actually fell slightly in June.
The following chart, from a Washington Post article, helps highlight the problematic nature of U.S. job growth. By far the greatest number of jobs lost during the recession were mid-wage jobs. And by far the greatest number of jobs created during the recovery have been low-wage jobs.
Even worse, almost all the jobs created over the last six months have been part-time. According to a McClatchy report:
The unemployment rate is measured by the separate Household Survey, and it fell two-tenths of a percentage point to 7.4 percent, its lowest level since December 2008. That’s due in part to slow growth in the labor force. The jobless rate is based on a sample of self-reporting from ordinary people across the nation, and it’s the Labor Department measure that shows a very troubling trend in hiring.
“Over the last six months, of the net job creation, 97 percent of that is part-time work,” said Keith Hall, a senior researcher at George Mason University’s Mercatus Center. “That is really remarkable.”
Hall is no ordinary academic. He ran the Bureau of Labor Statistics, the agency that puts out the monthly jobs report, from 2008 to 2012. Over the past six months, he said, the Household Survey shows 963,000 more people reporting that they were employed, and 936,000 of them reported they’re in part-time jobs.
“That is a really high number for a six-month period,” Hall said. “I’m not sure that has ever happened over six months before.”
No wonder workers are struggling to make ends meet—job creation is weak and most of the jobs being created are low paying and part time. But it is not like corporations don’t care. For example, McDonald’s Corporation teamed with Visa to offer its workers a helping hand: a web page with advice about how to budget better. This must be a great help to workers that earn on average about $8.25 an hour.
The McDonald’s working budget, shown below, is a bit hard to interpret. What is clear however is that the company expects workers to have two jobs, pay $20 a month for health care, nothing for heat, $600 a month for rent, and . . .
For insight into what it is like to live on a McDonald’s wage, check out the Bloomberg story on Tyree Johnson, a 20 year employee still making minimum wage. Corporations like McDonalds don’t pay these low wages because they are hurting but rather because they help their bottom line, as the following graphic from the Bloomberg story shows.
Corporate apologists often argue that these jobs are just “starter” jobs for high school students seeking to earn money for some extra like a smart phone. But as the New York Times notes, only 14% of those earning between the minimum wage and $10 an hour are less than 20 years old.
As Steven Greenhouse reports, fast food and other low wage workers have begun organizing and striking to improve their working conditions; they are demanding a $15 hourly wage:
In recent weeks, workers from McDonald’s, Taco Bell and other fast-food restaurants — many of them part-time employees — have staged one-day walkouts in New York, Chicago, Detroit and Seattle to protest their earnings, typically just $150 to $350 a week, often too little to support themselves and their families. More walkouts are expected at fast-food restaurants in seven cities on Monday. Earlier this month hundreds of low-wage employees working for federal contractors in Washington walked out and picketed along Pennsylvania Avenue to urge President Obama to press their employers to raise wages.
These workers are taking real risks and if successful their gains would likely boost living and working conditions for most U.S. workers. They deserve our strong support.
Any improvement in living and working conditions in the United States is going to require far more than tinkering at the margins. The fact is that U.S. economic dynamics have undergone a major transformation.
As Figure 1, taken from a Dollars and Sense article by Gerald Friedman, shows, profits and investment are no longer positively related. Since the early 2000s, profits have soared as a percent of GDP and net private investment has plummeted. Even during the 1990s, when high-technology was celebrated as the engine of never-ending growth, net investment as a share of GDP remained below 1970s and 1980s highs.
Our leading companies, the ones that shape government policy, are now able to make healthy profits without spending on plant and equipment much beyond replacement. Their profits are now largely secured by globalizing manufacturing production, financialization, intensification of work, wage suppression, and government tax-breaks and subsidies. Of course, that means that their quest for profits will continue to lead to policies likely to undermine progress in reversing negative trends in majority living and working conditions.
A case in point is their aggressive push, supported by the Obama administration, for new free trade agreements—the Trans-Pacific Partnership Free Trade Agreement and the Trans-Atlantic Free Trade Agreement. President Obama took the lead in securing passage of the Korea-U.S. Free Trade Agreement, arguing that it would improve our trade balance with Korea and by extension U.S. jobs. Well, the returns are in, and in line with the record of past agreements, the outcome is the exact opposite.
The Eyes on Trade blog offers the following summary:
April  was another record-breaking month for U.S. trade with Korea under the U.S.-Korea Free Trade Agreement (FTA). The monthly U.S. trade deficit with Korea soared to its highest point in history, topping $2.5 billion for the month of April alone.
According to a ratio used by the Obama administration, the unprecedented deficit surge implies 13,500 U.S. jobs lost to trade with Korea in just thirty days. April’s trade deficit with Korea was 30% higher than in April 2012 — the first full month of FTA implementation — and 90% higher than in April 2011, before the FTA took effect.
The deficit increase owes largely to a dramatic drop in U.S. exports to Korea since enactment of the FTA. U.S. exports to Korea in April once again fell below the levels seen in any given month in the year before the FTA took effect. The sorry track record defies the promise (FTA = more exports) that the Obama administration used to pass the FTA. Undeterred by the facts, today the administration is using the same worn-out promise to sell the Trans-Pacific Partnership.
Unwilling to pursue policies that directly threaten corporate interests, the Obama administration has relied on monetary policy, or more specifically lower interest rates, to boost investment and employment. As Figure 2 from the Dollars and Sense article makes clear, while lower rates generally boost investment, data points for 2009, 2010, and 2011 strongly suggest that monetary policy has lost its effectiveness.
President Obama can talk all he wants about the need for more investment and better jobs, but unless he is pushed to pursue dramatically different policies, it is hard to see any real gains for working people over the next decades.
Paraphrasing Donald Rumsfeld, there are things we know and things we don’t know, and things we know we don’t know and things we don’t know we don’t know.
One thing many working people in American don’t know that they don’t know is how poor our social benefits are compare with those enjoyed by workers in other countries. No doubt one reason is the general media blackout about worker experiences in other countries. A case in point: vacation benefits.
The Center for Economic and Policy Research recently completed a study of vacation benefits in advanced capitalist economies. Here is what the authors found (see Figure 1 below):
The United States is the only advanced economy in the world that does not guarantee its workers paid vacation. European countries establish legal rights to at least 20 days of paid vacation per year, with legal requirements of 25 and even 30 or more days in some countries. Australia and New Zealand both require employers to grant at least 20 vacation days per year; Canada and Japan mandate at least 10 paid days off. The gap between paid time off in the United States and the rest of the world is even larger if we include legally mandated paid holidays, where the United States offers none, but most of the rest of the world’s rich countries offer at least six paid holidays per year.
Even though paid vacations and holidays are not legally required in the United States, some employers do provide them to their workers. The table below shows the paid vacations and paid holidays offered in the U.S. private sector based on data from the 2012 National Compensation Survey.
The first two columns of the table show the percentage of private sector workers that receive paid leave, vacation and holidays. The next two columns show the average number of paid vacation and paid holidays provided to those employees that receive the relevant benefit. The last two columns show the average number of paid vacation and paid holidays for all private sector workers, meaning those that receive and those that do not receive the relevant benefits.
Thus, on average, private-sector workers in the United States receive ten days of paid vacation per year and six paid holidays. This total still leaves U.S. workers last in the rankings even when compared with the legal minimums highlighted above. And many employers in these other countries also offer more paid leave than legally required.
Moreover, several countries require additional paid leave for younger and older workers, additions that are also not included in the legal minimums highlighted above. For example, “in Switzerland, workers under the age of 30 who do volunteer work with young people are entitled to an additional five days of annual leave. Norway offers an additional week of vacation to workers over the age of 60.”
And some countries provide additional leave for workers with difficult schedules. For example, “Australia offers some shift workers an additional work week of leave. Austria offers workers with ‘heavy night work’ two to three extra days of leave, depending on how frequently they do this shift work, and an additional four days of leave after five years of shift work.”
Several countries offer additional paid leave for jury service, moving, getting married, or community or union work. For example, “French law guarantees unpaid leave for community work, including nine work days for representing an association and six months for projects of ‘international solidarity’ abroad and leave with partial salary for ‘individual training’ that is less than one year. Sweden requires employers to provide paid leave for workers fulfilling union duties.”
Austria, Belgium, Denmark, Greece, and Sweden even require employers to pay workers at a premium rate while they are on vacation.
There is more to say, but the point should be clear. Ignorance of experiences elsewhere has narrowed our own sense of possibilities.