Rape of the Union: Corporate Profits and Lost Jobs

This article is from the archive of our partner .

Looking ahead to tonight's economically-themed State of the Union address from Barack Obama, one encounters conflicting numbers. In some significant ways, the US economy has appeared to recover, returning to non-recession levels in many measurements, and exhibiting growth as well. Corporate profits have soared, with major corporations and businesses posting their highest third quarter ever in fall of 2010 and increasing their share of the total economic output at the same time. Halliburton--can't forget about them--just reported the doubling of their profits. What's all this downer talk about a recession anyway?

Yet for most of the country, the economy seems to be in more of a hobble than a gallop, with unemployment--one of the more palpable measurements of economic viability--still above 9 percent, more than double the roughly 4 percent joblessness in 2000. 47 million people currently live below the poverty line, and we're not talking about a high bar here: $22,400 for a family of four. What on earth is going on? Much has been made about rising inequality in the United States--a recent statistic showed that 44 percent of the wealth in New York City was owned by the top 1 percent. Obama himself has come under fire for being beholden to big business and the interests on Wall Street repeatedly since the bailout, and many considered his appointment of Jeffrey Immelt yet another sign of his alliance with the big guys. Is the job market merely lagging behind big business's earnings? Or is part of the reason for the windfall profits the shedding of American jobs? There was once a quaint idea called the American dream, with the small business as its corner stone. Is it now just a dream? A few economic commentators weigh in, addressing the issue of big corporations shifting jobs overseas:

  • Reminder: Corporate Interests Aren't the Same as American Interests  "The profits of American corporations are soaring," writes Robert Reich, the former Secretary of Labor for Bill Clinton," ... largely because sales from their foreign-based operations are booming ... It's also because they've cut their costs of production in the US ... American-based companies have become global--making and selling all over the world--so their profitability has little or nothing to do with the number and quality of jobs here in the U.S. In fact, it may be inversely related." He cautions Obama: "the President must not be seduced into believing--and must not allow the public to be similarly seduced into thinking--that the well-being of American business is synonymous with the well-being of Americans."
  • Company's Success Doesn't Mean Economic Success  "A corporate leader who increases profits by slashing his work force is thought to be successful," says Paul Krugman. "That's more or less what has happened in America recently: employment is way down, but profits are hitting new records. Who, exactly, considers this economic success?"
  • It’s As Bad As It Looks  "Dubbed 'median wage stagnation' by economists," writes Edward Luce at the Financial Times, "the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973--having risen by only 10 per cent in real terms over the past 37 years. That means most Americans have been treading water for more than a generation." The top 1 per cent is a different story: "In 1973, chief executives were on average paid 26 times the median income. Now the ­multiple is above 300."
The fact of the matter is that the long-term trend in US manufacturing output is up even as the trend in employment is down. And that's precisely because greedy for-profit firms don't like to hire lots and lots of people for high-wage labor-intensive work. So over time, they've gotten better and better at replacing people with machines. The edge Chinese workers have over Americans is that they're so cheap (so far) that they’re not worth replacing with machines
  • The Growth of Finance  "Think of all the profits produced by businesses operating in the U.S. as a cake," explains John Cassidy at the New Yorker. "Twenty-five years ago, the slice taken by financial firms was about a seventh of the whole. Last year, it was more than a quarter. (In 2006, at the peak of the boom, it was about a third.) In other words, during a period in which American companies have created iPhones, Home Depot, and Lipitor, the best place to work has been in an industry that doesn’t design, build, or sell a single tangible thing."
  • Immelt Helped GE Recover at Our Expense  "Yes, GE is arguably America's greatest company, an industrial giant whose aegis runs from technology to aviation to finance, and whose stock has been on a roll, near a 52-week high thanks to profits that surged 51 percent from a year ago," writes Douglas Schoen at the Daily Beast. But they did that, with new Obama adviser Jeffrey Immelt's help, by "eliminating [jobs] in this country. Since 2001, GE has shed at least 25,000 jobs domestically--and created an equal number or more overseas--while shuttering 29 plants in the U.S. over the last couple of years. It's also worth noting that GE's financial arm received a multi-billion-dollar liquidity injection from the Federal Reserve during the 2008 financial meltdown."
  • We Don't Make Things Anymore, believes Dean Baker at the Guardian, and it's hurting us. "The loss of relatively well-paying manufacturing jobs has put downward pressure on the wages of large segments of the US workforce. It is one of the main factors behind the growth of inequality in the United States in the last three decades."
  • More Investment Needed in Skilled Work Force opines Ezra Klein at the Post.
We're in a period when we not only venerate competition, but actually have to compete. The financialization of the economy means more managers have to answer to shareholders, and shareholders don't want to see high labor costs unless it's clear they're getting a return for them. Foreign competition has made the wage gap between different sorts of workers vast: Paying American workers a good wage while the other guy pays Thai workers a bad wage leaves you at much more of a competitive disadvantage…Bottom line? It's hard to pay workers well in America now, even if you want to. It's easier to pay them well, of course, if you have to….it's fairly persuasive on the idea that the good jobs aren't going away so much as they're sorting themselves by education and ability. At the same time, the pace of educational attainment in America has slowed considerably. So the percentage of good jobs that require credentialed workers has increased, but the percentage of credentialed workers hasn't. That's probably a big part of this story, and it speaks to the need for much, much more investment in the workforce.

This article is from the archive of our partner The Wire.