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GLOBALIZATION - GIVING AWAY THE STORE?
The term “globalization”
refers to the idea that the new economic paradigm has rendered the old national economies as extinct. To survive in today’s world, the nation-states must join their economic destinies to the rest of the world. To compete, they must marry their means of production to the labor forces of the Third World. So they say.
Our “Captains of Industry” have led us to the abyss of economic destruction. We are sailing on the economic “Ship of Fools”
with these captains.
We have seen how the corporate leaders of America have enriched themselves at the expense of the very system that created them. Few of our political leaders have the
courage to oppose the powerful forces that have brought about this sorry situation.
Who can forget the decade of the 1970s
when one steel mill after another was closed and thousands of our steelworkers found themselves permanently out of work? Visit the former steel centers such as Bethlehem and Pittsburgh, Pennsylvania
and look at the skeletons of the former steel mills that still remain. As we watched the reports of the closings of these factories on television, our corporate leaders explained that we had lost our competitive edge. We could no longer compete with the steel coming in from Japan and other places in the world. Our manufacturing methods were outmoded. So, we were forced to close our plants. The
World Trade Center was constructed of steel in the early 70s. Not one piece of that steel was produced here in the United States.
Cartoon Courtesy of Matt Woerker
Of course, our captains of industry were not able to retool their factories and
compete with foreign steel producers because of the high cost of labor here in the USA. So, they did the next best thing. The labor unions were a major cause of the
corporate problems. Why not relocate the factories to non-union states where cheaper labor could be found that would enable our corporations to compete? So, the
manufacturing jobs went to those states without those nasty unions. Remember those years when the Sunbelt was where all the jobs were being created? The old
Rustbelt areas of the Northeast were losing those jobs.
What about the American Automobile Industry?
Do you remember when Lee Iacocca saved Chrysler Corporation with the “K” Car? I remember because I
purchased one in 1982. I could not bring myself to buy a foreign car when the American car industry was in trouble. What a mistake that was. Who would have thought that General Motors and Ford would be struggling as they are today? During the Carter Administration, Stagflation ruled the economy. Inflation, the Great Thief of the value of the dollar
, was aggravated by the the phoney Oil Crisis. Americans waited on long gas lines to get gasoline on alternate days. I filled up the
tank of my gas- guzzling Oldsmobile and was forced to limit my vacation travel to one gas tank of fuel.
Fuel economy became the rallycry of our politicians with their finger held to the
prevailing winds. What happened? The foreign cars were fuel efficient and cleaned our economic clock. There was a temporary influence on the American car producers
and we saw some sorry imitations of those foreign cars, but it wasn’t long before we would see the appearance of the SUV. The Humvee and the behemoth SUV would
shove those tiny fuel efficient cars out of the way. Now, we are told that we are “addicted to oil”.
When the US Mint prints paper money, the value of the dollar goes down because the more dollars there are in circulation, the value of the dollar falls. That means that the
prices of goods and services go up. Combine a falling dollar with the exploding prices of oil and you have an economic crisis. Recently, I received a prospectus from an
investment firm that advised investors to be aware of the financial Strategy for a Falling Dollar
. The prospectus illustrated how investors could profit from the decline of the currency of the United States of America by means of The Dollar Multiplier Effect:
“All else being equal, a declining dollar boosts the returns of the international mutual funds that don’t hedge currencies. A simplified example demonstrates how this works:
You buy $10,000 worth of a mutual fund that invests exclusively in Japanese stocks. In order to invest that $10,000, the fund converts your dollars into
Japanese yen. At an exchange rate of around 100 yen to the dollar (the actual rate today is around 113.5) you now have an investment valued at 1,000,000
yen. It’s a good year for the Japanese market and the stocks your fund owns rise 20%. Your investment is now worth 1,200,000 yen. But let’s say that over the
year, the dollar has declined in value by 10% versus the yen. Now instead of taking 100 yen to buy a dollar, 90 will do the trick. So when your investment
valued in yen is translated back into dollars, you get $13, 333 (1,200,000/90). Instead of a 20% gain, you get a return of 33 1/3%.”
Quote courtesy of Market Update, Kobren Insight Management
Question? Whose team are we playing on? Are we to cheer when the value of our currency is depreciated so that we can realize a greater profit? Doesn’t the value of
our dollar mean anything to our fellow Americans struggling to feed their families? Have we lost our sense of values? Also, why does the Stock Market rally whenever
news of mass layoffs is announced? Isn’t there something wrong with this picture?
Who is steering this ship?
We also watched as one family farm
after another was auctioned off in the 1970s. The Media featured hearbreaking reports of families forced to sell their land. They
had farmed the same land for many decades. Yeomen farmers, of whom we had always boasted had fed the world in past famines, were now being farmed out of their own land. The Breadbasket of America was being stripped of its owners. They could not compete with a changing global market place. America chose not to protect
its farmers. Someday, we may reget that decision.
The decade of the 1980s would witness the Savings and Loan Debacle
. An entire financial institution would be destroyed through the greed and mismanagement by our captains of industry. No problem there folks: the taxpayers would pay for it.
To read a historical account of the Savings and Loan Scandal go to this website: http://www.fdic.gov/bank/historical/s&l/
The near destruction of Wall Street
was another disgrace. American businesses such as Kidder Peabody, Drexel Burnham Lambert, and Ivan F. Boesky Corporation
became as well known in our courts as on Wall Street. We lay folks weren’t privy to the corporate terminology of our new captains of industry.
Concepts like arbitrage
, mergers and acquisitions, and just plain destruction of business entities weren’t familiar ideas to the average American worker. A lot of those “Arbitrageurs” went to jail thanks to the efforts of a certain Federal District
Attorney named Rudolph Giuliani in the Southern District of New York.
For light reading during this summer, get a copy of “Den of Thieves”
by James B. Stewart. This book is an expose of the crooks who nearly destroyed our securities industry in the decade of the 1980s.
Pulitzer Prize winning Investigative reporters Donald L. Barlett and James. B. Steele, of the Philadelphia Inquirer
wrote a series of articles that led to the publication of their book: “America: What Went Wrong?” This book was followed
by two other books that revealed the economic disaster that has befallen us. “America: Who Stole the Dream?” and “America: Who Really Pays the
Taxes?” should be required reading for every American taxpayer.
These two fine reporters also wrote a scary article that was published in the October
2005 issue of Time magazine entitled: “The Great Retirement Rip-off”. It is sad
to note that both of these investigative reporters have lost their jobs due to corporate budgetary considerations. The destruction of the retirement benefits of millions of
Americans is the next tragedy that awaits us. The same method that destroyed the Savings and Loan Industry in the 1980s and dumped the problem on the American
taxpayer is being duplicated by the destruction of the retirement plans of America. Corporations are seizing the pension funds of their employees by way of the bankruptcy procedures. The overtaxed Pension Benefits Guaranty Corporation (PBGC) http://www.pbgc.gov/ is a Federal Corporation created by the ERISA Act of 1974. PBGC will be the final dumping ground for corporate pension systems. When PBGC
is finally overwhelmed by deadbeat corporations, the American taxpayer will again be forced to pay the bill for those pensions.
The Real Estate Bubble is the
Elephant in the room and is another disaster waiting to happen. The billions of dollars in mortgage debt that has been created over the past
few years is a disgrace. The price of homes has skyrocketed not from a legitimate demand for housing, but from wild speculation brought on by phoney low interest rates.
The so-called “creative” lending policies of our lending institutions such as interest only mortgages and no money down for those with little or no credit is a tragedy waiting to
happen. What the average home owner doesn’t realize is that the lending institution or bank doesn’t hold their mortgage. Those bank and lending institutions dump their
mortgages on Federally insured institutions such as the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the The Federal National
Mortgage Association (FNMA; commonly known as Fannie Mae.
The lending institutions know that if and when a collapse of real estate value occurs,
most of the loss will be absorbed by those two Federally insured mortgage corporations in the ensuing flood of foreclosures. Have you checked the interest rates
that banks pay their depositors lately? Why not compare those interest rates with the bank credit card that you have in your wallet? Have you been late with one payment
on that card? What those lending institutions also know, is that the holders of their bank credit cards
will be forced to pay back their credit card debt due to recent changes in the bankruptcy laws. So the bankers sleep soundly these days knowing
that those those low interest mortgages have been dumped on Uncle Sam and those sky-high credit card fees are guaranteed.
The Stock Market
would benefit from that brief period when the downfall of the Soviet Union and reunification of Germany ended the Cold War. However those
same years would see the destruction of the pensions and retirement plans of millions of American workers. You see, our corporate leaders had discovered a way to save
their mismanaged corporations by seizing the pensions of the workers to pay for the restructuring of the corporation via our bankruptcy laws. After all, how could our
corporations who were saddled with those expensive pension plans compete with foreign corporations who paid their workers pitiful wages and never had to worry
about the greedy workers who wanted to retire in their old age? Defined benefit pension plans would have to go. Concepts such as pension plans and health plan
benefits don’t dovetail with concepts such as “the bottom line”. Our new corporate
leaders seem to feel that management owes nothing to labor. Only profit and the satisfaction of the shareholders of the corporation need concern them. This idea would explain the new concept of the “ownership society”. Now we should all manage our own retirement and health benefits. The corporate world should be free to make
profits for the shareholders without all those nasty human resources problems.
Breadlines in New York City during the Great Depression
Photo Courtesy of FDR Presidential Library and Museum Hyde Park NY
That same idea of the “ownership society”
is trotted out whenever the Social Security System is discussed. Thus, the recent campaign to have our younger
citizens adopt this idea for their Social Security benefits. They should manage their own social security benefits with private accounts. This idea makes sense to corporate
leaders because one of their most expensive labor costs is the 8% that they were forced to contribute to each worker’s social security account. Why should
corporations be forced to pay for the social security retirement benefits and Medicare benefits of their workers? After all, many of the shareholders of the common stock of corporations may not be Americans at all.
Foreign investors who own stock in our corporations have no desire to pay for the retirements and health benefits of Americans
. When the Chief Executive Officers of our now global corporations meet their shareholders with the annual report, how can they justify the cost of
benefits? That isn’t part of the “bottom line” is it? Why not convince American
workers that the outmoded system of Social Security needs to be changed? By the way, with globalization, should we still use the term “Corporate America?”
Depression Era children
Photo Couresey of FDR Presidential Library and Museum Hyde Park, NY
What those young Americans may not realize is that Social Security isn’t just an old
age retirement plan. It is also a much more valuable plan. It is also a disability insurance plan that will be there if for health reasons they are disabled. Both the
disabled worker and his children are insured and will receive benefits that prevent them from falling through the cracks. Also, if totally disabled, such a worker would also
come under Medicare and would be covered for health benefits while totally disabled.
What our corporate leaders have rediscovered with these developments over the past few decades is the idea of “LAISSEZ-FAIRE CAPITALISM”.
“The laissez-faire school of economic thought holds a pure or economically
libertarion market view, that the free market is best left to its own devices; that it will dispense with inefficiencies in a more deliberate and quick manner than
any legislating body could. The basic idea is that less government interference in private economic decisions such as pricing, production, and distribution of goods
and services makes for a better (more efficient) economy.
Economist Adam Smith in his book 'Wealth of Nations' argued that the invisible
hand of the market would guide people to act in the public interest by following their own self-interest, since the only way to make money would be through
voluntary exchange, and thus the only way to get the people's money was to give the people what they want. One does not get his dinner by appealing to the
brother-love of the butcher, the farmer or the baker. Rather one appeals to their self interest, and pays them for their labor.”
http://en.wikipedia.org/wiki/Laissez-faire
The proponents of Laissez-Faire Capitalism
dismiss the idea that unrestrained capitalism was in vogue during the Roaring 20s. The abuses of buying stock on
margin and an unregulated securities industry led to the Stock Market Crash of October 29, 1929. The Great Depression
ruined the lives of millions of Americans.
Depression Era Poster
Photo Courtesy of FDR Presidential Library and Museum, Hyde Park, NY
Would you like to see what our society was like under Laissez-Faire Capitalism? Visit the Franklin Delano Roosevelt Museum in Hyde Park, New York
. Look at the old photos of New York in the early years of the 20th Century. Visit the lower East Side and see why they named the NYC Housing Developments after people with names like Jacob Riis and Lillian Wald.
Click here to read chapters of Jacob Riis’s classic
“How the Other Half Lives” for contemporary accounts of poverty in NYC under laissez-faire:
http://www.bartleby.com/208/
In the last decade, we have had the term “Globalization” shoved down our collective
throats. The pursuit of the bottom line has led our corporate leaders to seek cheaper and cheaper labor costs off shore. Now, China and India offer the best opportunity
for cheap labor. We are told not to worry because our labor force will keep the best jobs in high tech. Yeah, right.
Our corporate leaders have also discovered how to shelter their corporations from
taxation by the Government of the United States. Corporations have now established themselves off shore to avoid taxation. These off shore locations are also hotbeds of money laundering. The bank secrecy
of these tax shelters protects the corporations from the prying eyes of Interpol and law enforcement entities. Narco-terrorists
as well as garden variety thieves use these off shore shelters. Guess who pays those taxes that corporations have avoided? No wonder, we can’t afford
pensions and health care here in the United States.
Now for the good news. In their pursuit of the bottom line, our captains of industry
have relocated much of our manufacturing base to places such as China. However, greed is not an American monopoly. There is an Achilles Heel
to the outsourcing of the American economic miracle. That Achilles Heel may well be the intellectual
property rights and patents that have led to the American Dream for millions of us. Those who have used their creative talents and skill to invent new ideas here have always been protected by our copyright and patent laws that protect those ideas from being stolen and used by the mediocre and greedy among us.
In their pursuit of cheaper labor, corporate leaders may have created the very means by which the outsourcing of our jobs will come to an end. For instance, the Chinese
economy has been growing each year as we have relocated our manufacturing and technology to that nation with a cheap labor force. However, to the dismay of our
corporate leaders, the Chinese have been ignoring our intellectual property rights and patents and have been producing “knock-offs”
of our products on a grand scale. So far, the Chinese have been violating our copyrights in manufacturing, but what will prevent them from doing the same thing in other areas such as high-tech and
pharmaceuticals? Our American trade negotiations with China reveal much. For instance, Boeing
has agreed to a trade deal with China for the latest in aviation design. To get the deal for a large number of aircraft, the Chinese have insisted that to get the
deal, key components of the aircraft must be produced in China. Boeing executives agreed to this. What turnip truck did these corporate leaders fall off?
Brazil
is another example of what the future may hold... When Brazil appealed for assistance in fighting their HIV and AIDS epidemic, they found that the price of our
drugs were prohibitive. The “Bottom Line” took preference over dying children.
Brazil went ahead and produced their generic own version of the HIV drugs that were still protected under our patent laws. The copyright law and patents of the United
States should have controlled the illegal manufacture of those drugs, but is it realistic to believe that this trend will not be repeated worldwide in our global economy? This is
an explosive area of human relations. Who would suggest that Brazil should not duplicate the HIV drugs for their people?
In the past, the workers of other nations did not have the training to produce our products. Now they do because we have provided them with the training as well as
the physical plants to manufacture those products. When the rest of the world realizes that they can ignore American intellectual property rights and patent laws
, a flood of counterfeit products will inundate our marketplace. When that happens, the balance of trade between the United States and the rest of the world will become a disaster.
This may well end outsourcing. Our captains of industry may come to realize that they must keep production at home and protect the intellectual property rights of Americans by insisting on the imposition of tariffs on imports of generic copies and knock-off products. In this way, America can protect its means of production and bring back the
jobs that have been lost over recent years. Then perhaps we could use the term “Corporate America” again.
One last thought. Why don’t we teach our American children economics? In the 21st Century they will be in a cruel world if we don’t give them the knowledge to survive.
Note: Visit the FDR Presidential Library and Museum at Hyde Park online by going to the website at http://www.fdrlibrary.marist.edu/
Copyright 2006 Edward D. Reuss
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