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The Political Economy of Redistribution

Outsourcing Jobs, Offshoring Markets

by ALAN NASSER

Conventional economic wisdom teaches that it is not in the interests of employers to drive wages down to desperation levels, since most consumers are wage earners and consumption demand generates from 66 to 72 percent of the Gross Domestic Product. Were employers to drive wages too low they would  at the same destroy their customer base, which is good for neither capital nor labor. This line of reasoning assumes that capitalism is  organized such that each nation’s labor market is both entirely domestic and the sole source of  the demand for its economy’s output. But capitalism is a global system and its sovereign components are not closed economies. The typical large corporations’ labor pool and customer base are now globally dispersed. In fact, the last few decades has seen the creation, for the first time in history, of a global labor market.

The outsourcing of jobs has become common knowledge, and is perceived by most working people as a significant source of the nation’s unemployment woes. The loss of jobs to cheaper labor markets is nothing new; it has been building since the 1960s. In 1959, manufacturing represented 28 percent of domestic output.  In 2008, it represented 11.5 percent. This tendency has accelerated with the deregulation of cross-border capital flows. Since 2000 the United States has lost thousands of factories and a total of about 5.5 million manufacturing jobs, representing a 32 percent decline. By the end of 2009, less than 12 million Americans worked in manufacturing. The last time we saw those numbers was in 1941.

Widget production is not the only sector thast has seen job outsourcing. We are perhaps most familiar with offshore phone centers, but all sorts of uptown jobs have also been shipped out. Highly trained engineers and draftsmen, architects, computer programmers and other kinds of high-tech workers are increasingly employeed by US companies in China, Russia, India, and the Philipines.

In these neoliberal times we are no longer scandalized to learn that this pattern is heartily championed by none other than the chairman of president Obama’s Council on Jobs and Competitiveness, Jeffrey Immelt, who happens to be CEO of General Electric. 2010 was a banner year for GE, when $9.1 billion of its total profits of $14.2 billion came from its overseas operations. Immelt pulls no punches in his indifference to US workers. At a December 6, 2002 investors meeting he enthused “When I an talking to GE managers, I talk China, China, China, China, China. You need to be there. You need to change the way people talk about it and how they get there. I am a nut on China. Outsourcing from China is going to grow to 5 billion. We are building a tech center in China. Every discussion today has to center on China. The cost basis is extremely attractive. You can take an 18 cubic foot refrigerator, make it in China, land it in the United States, and land it for less than we can make an 18 cubic foot refrigerator ourselves.”

This is the man Obama put in charge of a committee assembled to address the nation’s unemployment crisis. But don’t think that Immelt’s obsession with overseas economic activity is only about cheap labor and lower costs. He goes on: “Today we go to Brazil, we go to China, we go to India, because that’s where the customers are.” My goodness, this looks like the Leninist thing about the insufficiency of domestic markets to absorb the economy’s output. The US worker is not only becoming decreasingly important as an input to production, (s)he is no longer seen by big capital as the most promising customer, the most robust source of sales revenue.

On both the supply side and the demand side, the US worker/consumer is perceived as incrementally inessential. The former Labor Secretary under Clinton and current liberal blogger Robert Reich thinks that this strategy is irrational, even on capitalist terms: “Corporate profits are up right now largely because pay is down and companies aren’t hiring. But this is a losing game even for corporations over the long term. Without enough American consumers, their profitable days are numbered. After all, there’s a limit to how much profit they can get out of cutting American payrolls or even selling abroad. European consumers are in no mood to buy. And most Asian economies, including China, are slowing.” Reich doesn’t get it.

The reference to “European consumers” is beside the point; Immelt and company don’t have Europe in mind. Exports are indeed the name of the current game, but the consumers are thought by the elite to be found in the emerging markets. Obama has for years been chanting the “export more, consume less” mantra as the key to US economic revival. His bosses reason by process of elimination. They know that the economy’s total product is generated by four and only four kinds of spending: consumption demand, investment demand, government demand and export demand. Consumption is not promising as a spur to production and profits because most consumers are wage earners, and they are low-paid, have taken absolute reductions in pay, are heavily indebted and are un- or underemployed. Investment doesn’t cut it for two reasons: no employer invests when purchasing power is exceptionally low, and, more importantly and completely unacknowledged by commentators, the present depression is not caused by a scarcity of productive facilities or by outdated equipment. A well developed complement of productive facilities is fully in place and ready to go. There is no need for additional investment. As for government spending for productive purposes, this is ruled out by the neoliberal consensus. Obama has repeatedly stressed that recovery must be rooted in the fabled self-restorative workings of the private sector.

We are left with exports as the economic Open Sesame. Obama has laid out the game plan in some detail in a speech, on his National Export Initiative, to the annual conference of the Import-Export Bank (March 11, 2010): “The world’s fastest-growing markets are outside our borders. We need to compete for those customers because other nations are competing for them.”

The focus on exports is consistent with the current geopolitics of the elite, which is reliably registered in the business press, most notably in such key journals as Foreign Affairs, The Financial Times and The Economist. There is thought to be a global shift of manufacturing activity from “the West” to “the East,” as the economically mature US, Europe and Japan deindustrialize while the emerging markets, mainly in Asia, take up the global slack by developing their own industrial prowess. Reich’s observation that “most Asian economies, including China, are slowing” is correct but inconsequential. What matters, as Obama notes, is where the “world’s fastest-growing markets” are to be found. Asia’s current slowing growth is compatible with the rapid growth, within China and India for example, of a new middle class and a nouveau riche. These are viewed by Western elites as where the present and prospective action is.

A now notorious Citigroup report encapsulates this economic cosmology in its thesis that “the World is dividing into two blocs – the Plutonomy and the rest.” Mounting inequality has become planet-wide. In a globalized world, the story goes, national consumers  -“the US consumer”, “the French consumer”, “the Japanese consumer”- are obsolete. There are only the rich and the rest. The former are proportionally small in number but growing rapidly as neoliberal policy transfers to them the resources of the rest. The latter are accordingly marginal to what matters to the owning class.

A US-based CEO of one of the world’s largest hedge funds told a writer for The Atlantic that “the hollowing out of the American middle class didn’t really matter.” The CEO described the subject of an executive discussion earlier this year: “… if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade.” The Chief Financial Officer of a US internet company expresses the same sentiment: “We demand a higher paycheck than the rest of the world. So if you’re going to demand 10 times the paycheck, you need to deliver 10 times the value. It sounds harsh, but maybe people in the middle class need to decide to take a pay cut.” At the summer 2010 Aspen Ideas Festival, the CEO of the Silicon Valley firm Applied Materials claimed that were he starting from scratch, only 20 percent of his workforce would be domestic. “This year, almost 90 percent of our sales will be outside the US. The pull to be close to the customers -most of them in Asia-  is enormous.” And Thomas Wilson, CEO of Allstate, is unabashedly frank about the way in which globalization generates an opposition between working-class and business interests: “I can get [workers] anywhere in the world. It is a problem for America, but it is not necessarily a problem for American business… American businesses will adapt.” (See Chrystia Freeland, “The Rise of the New Global Elite,” in The Atlantic, January/February 2011.)

What all this comes to is a political economy of redistribution. Slow global economic growth over the past 30 or 40 years, and with no end in sight, has been construed by the Left as an indication of spreading “crisis,” a failure of capitalism to live up. From the perspective of working people the characterization is on the mark, since capitalism’s legitimizing ideology assures us that all will prosper when capitalism is doing its job. But from the point of view of capitalists, whose objective is to accumulate wealth, slow growth is not necessarily a sign of crisis, since wealth can be accumulated by redistribution, by widening inequality, in the absence of robust growth rates. This is what is currently taking place intra- and internationally. The outsourcing of jobs and customers is part of that game. Profits are revenues minus costs. Revenue maximization is thought by elites to be sought offshore. Cost reduction is to be created everywhere.

We can call this the Third-Worldization of the Rest, or, if we focus on the wage-earners of the developed countries, the creeping obsolescence of the working class. Workers can of course never be rendered entirely obsolete. What is happening is that we are approaching that condition asymptotically. One might object that there are clear limits to how impoverished working people can be made – after all, workers have to be maintained as work-ready. Upward redistribution can only go so far. But ever-widening inequality is perceived by elites as feasible by virtue of the limitless possibilities of greater indebtedness. Workers can make ends meet by indefinitely mortgaging their future income.

It is not far-fetched to see a growing resemblance of US and poor-country workers. High-priced economic forecasters and consultants are known to refer to the US as “Europe’s Mexico.” In the near future, they predict, some US states, mostly in the South but also including California and the Rust Belt, will be not only the cheapest manufacturing locations in the developed world, but also competitive with India and China. Wages are rising in the production- and service-oriented poor countries and falling in the rich ones. And US workers tend to quiescence, while unrest in brewing in the periphery. Costs of production are gradually converging between China and the US: declining-wage US workers are more productive, and fuel prices are expected to continue to rise, making it increasingly expensive to ship goods around the world. Non-union workers contracted by Ford to do inspection and repairs at the Dearborn truck plant make $10 an hour without benefits, which is projected to be less than the Chinese average by 2015.

Companies like Ford, Caterpillar, Wham-O Inc. (Frisbees), Master Lock, Suarez Manufacturing and General Electric have recently relocated production from China and Mexico to Georgia, Ohio, Indiana, Wisconsin, California and Michigan. This may or may not be a growing trend, but the mere fact of some US regions becoming newly competitive with Mexico and China bespeaks the declining fortunes of the US worker.

The New York Times’s favorite neoliberal wild man Thomas Friedman summarizes the immiseration project in his trademark manner: the task in our country is to “cut public sector pay, freeze benefits, slash jobs, abolish a range of welfare entitlements and take the ax to programs such as school building and road maintenance.” Friedman goes on to excoriate US and Western European workers for believing in the “tooth fairy” and expecting government services without paying for them. In America, Friedman says, the baby-boomers, who inherited the prosperity of the post-war years, had “eaten through all that abundance like hungry locusts… After 65 years in which politics in the West was, mostly, about giving things away to voters, it’s now going to be, mostly, about taking things away. Goodbye Tooth Fairy politics, hello Root Canal politics.”  (May 9, 2010)

The oligarchy has laid out, in plain and simple terms, its game plan. What shall be our response?

Alan Nasser is Professor Emeritus of Political Economy at The Evergreen State College in Olympia, Washington. This article is adapted from his book in progress, The “New Normal”: Chronic Austerity and the Decline of Democracy. He can be reached at nassera@evergreen.edu