Wednesday, February 09, 2011

U.S. global corporations to America: Drop dead

Charles Hugh Smith at Of Two Minds points out a core truth about the American economy that is hardly ever discussed in the mainstream media: nominally U.S. companies don't need to worry their heads over unemployment and poverty in the States, because most of their profit comes from elsewhere. (Tip of the hat: Zero Hedge.)
Global Corporate America has been decoupling from its country of origin for a long time, and the last weak bonds appear to be snapping. ...

Let's look at the number of consumers of global U.S. corporations' goods and services in aggregate. According to the FDIC, about 25% of Americans have little or no access to credit. This is an excellent metric of poverty: in other words, 75 million Americans are too poor to purchase much more than rent (subsidized by Section 8 vouchers, etc.) food (subsidized by SNAP food stamps), minimal healthcare (subsidized by Medicaid), toothpaste, cable TV, mobile phone service and fancy footwear made in Asia. (Every "poor" person above the level of homeless I see on the subway or bus has fancy footwear and a cellphone.)

That leaves about 225 million Americans with enough discretionary income to be more rabid consumers of global corporate America's goods and services.

Alas, the U.S. is a mature consumer economy and the limits of consumer debt and leveraging seem to have been reached. As a result, corporate revenue growth in the domestic market is limited to GDP growth (most of which is generated by Federal borrowing and spending at this point): roughly 2-3%.

You can't "grow profits" 10% a year on this sort of tepid growth. So Corporate America's focus on international markets is not just rational but essential: there is no other way to grow revenues and profits.
The U.S.A. is increasingly a small frog in a big pond. Multinational corporations don't think of it (or any country) as "home," for whose citizens it has some responsibility. If you work for one of these outfits in a managerial role, you don't live in the United States even if that's your mailing address; you are "based" there. Next month you could be "based" in Beijing or London or Brazil.

Smith says, and I see no reason to disagree, that the multinational corporate employees' "loyalty during their working hours is to the corporation, and the goal of the corporation is to maximize return on investment for the shareholders, owners and senior managers who will profit most from rising revenues and profits."


Offshoring jobs and operations isn't only to take advantage of cheap labor, although that's part of the motivation. Equally important is that corporations want a big footprint in what they perceive as their most important markets -- beyond our borders.

Can't the United States require companies headquartered here to spend some of their profits in ways that benefit Americans as a whole? I don't know how, and even if it were feasible, the government dictating to private companies how they should apportion their profits would be a quasi-totalitarian solution worse than the problem.

As a practical matter, Smith says, multinationals are now so powerful that however much they spend on lobbying lawmakers, it's nickels and dimes compared to the worldwide income they stand to make.
U.S. corporations are pulling $500 billion in profits from non-U.S. sales, and they hold $1 trillion in stashed overseas profits in various tax havens. All the growth in their revenues and profits are coming from non-U.S. sources. Spending $3-$5 billion on lobbying and campaign contributions is an "investment" with extremely high returns: for that small sum, U.S.-based global corporations make sure the U.S. government and citizenry don't become overly burdensome or obstructive. 
What can the individual do? Invest in those corporations is the only answer I can offer. Gather a little of the action for yourself and your family. If that sounds too cynical, tell me a better idea.



Anonymous said...

A 'velvet revolution' as has been done in many other countries to end the power of the elites, remove the power-brokers from their seats, have truth commissions for the banksters, close the borders, end the fiat money system, re-enstate tarffis, close our markets, evict non-citizens, encourage recent legal immigrants to leave too,

If we can't have a velvet revolution than an Iron one. America has embraced Socialism. We don't want to live in pitiless Capitalism any more. Maybe we never did. In our system where innovators become zillionaires and others don't get jobs, winner take all isn't attractive to the majority, so we're not going back to the 19th century "Classical Liberalism" no matter how articulate and thoughtful the arguments of the fellows at The Reason Foundation.

The missing link is NATIONALISM. We are long overdue for a Nationalism uprising in the USA. Our government must begin to care about us, not abstract notions of making the world safe for capitalism, expanding free trade as a religious crusade, or helping create a middle class in India via exporting industries there.

In fact many would relish such a plan that made us part of something, even if it meant a slightly lower standard of living or income.

Eventually we will put Nationalism + Socialism together and have a true classic fascist movement in America. It may be left tinged (you hear the left-fascists all the time on Air America - Ed Schltz and Thom Hartman are all about economic nationalism) or it may be right tinged (so far only Buchanan in his lonely quest).

Someone said: "the first major politician to use the word "tarrifs" frequently and often in the next election wins!.

I agree. Let's hope it's not a short man with a moustache who hates Jews. But good or bad the man on the horse is on his way in America... you can almost hear the hoof beats off in the distance...

Rick Darby said...

To have nationalism -- which is capable of its own malign excesses -- you have to have a nation. But the Liberal Establishment has been very successful in using immigration, plus ethnic and class warfare, to dilute nationhood in the U.S., replacing it with a purely economic and conceptual version of a country.

Velvet revolution? I wrote a couple of posts in 2006 about an "American Velvet Revolution." In retrospect, they were embarrassingly naive. I didn't reckon on the actual extent of leftist institutional capture or the huge constituency for individual and corporate welfare. I had not yet taken on board the already existing changes from my outdated picture of Americans' values.

I don't see how a "man on horseback" is part of a Velvet Revolution.

Sebastian said...

The post-War US economy was an aberration that had to end. You can call it a golden age and all the rest but the truth is that the US emerged as the sole capitalist power after 1945. With the demise of the British Empire, the destruction in Germany, Italy, France and Japan, and the long sleep of China, the US was the only game in town.

Things change, that's all. Europe is back online, China has awoken, Japan, though troubled now, is still going very strong, and the post-colonial revolutions have brought the Third World into play - certainly economically and increasingly politically. All good things come to an end.

The Reagan "revolution" was the real start. All the indicators show 1981-1984 as the pivotal years. A new economy emerged. After Carter-induced stagflation, national policy turned to Wall Street and has not looked back. We have been in a 30 year long deflation in wages that is not abating while suffering under a 20 year Fed-induced asset inflation. The middle class is gone.

One legal point: corporations were initially required to provide some social benefit beyond maximizing profits for shareholders. This changed in the early part of the 20th c and explains why free market conservatives always emphasize that corporations have no other raison d'etre - they once did.

Americans have been conned in ways that Germans and Europeans have not. The elites here were able to convince the masses that economic nationalism was anti-American and that foreign interventionism was like apple pie. With the slogans isolationism and protectionism, they have been able to rape the nation.

Also, the idea that the US is "exceptional" and anyone can become Bill Gates helps people vote for economic policies which hurt them whereas in Europe, workers know they are workers and vote accordingly. America's idealism is also is greatest weakness.

The US does not deserve good government and more than any other nation that carries on this way.

Rick Darby said...

Sebastian (Marcus?),

You make some good points.

We can't rule out the possibility that a few more years of high unemployment, stagnant wages, unsellable houses, and expensive food, gasoline, and materials will lead to a serious reaction against laissez-faire global capitalism. To some extent that's already happening, but unfortunately many people see the answer in yet more government regulation and bailouts.

For good to come out of this debacle, we should find a way by which the profits from globalization and technological improvements in productivity are partly shared across the population with as little government involvement as possible.

Maybe a large tax bill on global corporations with the proceeds going directly to taxpaying citizens rather than into the government budget where politicians can use the money to buy votes.

Sebastian said...

Yeah, Marcus is my YouTube persona.

I agree that the choice of replacing globalism with big government is awful. That is why I personally support total freedom because I can at least prosper in this environment, whereas socialism is, as Mike Savage says, trickle up poverty. The leadership of the US has made a choice. Who am I to fight it?

Van Wijk said...

I share your misgivings, Rick. I consider myself a capitalist by default. I really don't like megacorps for the reasons you stated, but government's track record is so much worse that I'm simply not willing to give it any more power.

It will be interesting to see what the megacorps do in the future, as governments are still firmly in power in most of the world. I don't see us living out a William Gibson novel any time soon.

Rick Darby said...

Van Wijk,

Yes, exactly. The only force capable of standing up to megacorporations is ... government. Two sumo wrestlers, in it for themselves, indifferent to the good of ordinary people.

Maria said...

The old-school capitalists like Henry Ford, Henry J. Kaiser, and Andrew Carnegie believed in America, and believed they had an obligation to give back to the country that allowed them to become wealthy.

A few years ago I watched a PBS documentary on Ford's factories in the early part of the 20th century and it was quite interesting. True, he relied a lot on cheap immigrant labor, but he provided them with free English classes, free high-school equivalency courses, and free classes to help them learn about and assimilate into American culture. All the free stuff he did for his workers created jobs for native-born Americans as well as for immigrants.

As for Carnegie, he paid for the building and stocking of more than 2,000 public libraries across the U.S., Canada, and his native Scotland. Kaiser's solicitude for his workers' health grew into the Kaiser Permanente Medical system, which, although like all large bureaucratic systems it has its faults, it provides decent basic medical care at a relatively affordable price.

There's a lot to be said for the old-school, paternalistic American capitalist. I think they contributed a lot more to our country than they are given credit for. The old-school capitalists may have had their faults, but they are head and shoulders above the scum that inhabit the board rooms of today.