On July 18,2012, Robert Reich, Chancellor’s Professor of Public Policy at the University of California at Berkeley, writes
President Obama is slamming Mitt Romney for heading companies that were “pioneers in outsourcing U.S. jobs,” while Romney is accusing Obama of being “the real outsourcer-in-chief.”
These are the dog days of summer and the silly season of presidential campaigns. But can we get real, please?
The American economy has moved way beyond outsourcing abroad or even “in-sourcing.” Most big companies headquartered in America don’t send jobs overseas and don’t bring jobs here from abroad.
That’s because most are no longer really “American” companies. They’ve become global networks that design, make, buy, and sell things wherever around the world it’s most profitable for them to do so.
As an Apple executive told the New York Times, “we don’t have an obligation to solve America’s problems. Our only obligation is making the best product possible.” He might have added “and showing profits big enough to continually increase our share price.”
Forget the debate over outsourcing. The real question is how to make Americans so competitive that all global companies — whether or not headquartered in the United States — will create good jobs in America.
Apple employs 43,000 people in the United States but contracts with over 700,000 workers overseas. It assembles iPhones in China both because wages are low there and because Apple’s Chinese contractors can quickly mobilize workers from company dorms at almost any hour of the day or night.
But low wages aren’t the major force driving Apple or any other American-based corporate network abroad. The components Apple’s Chinese contractors assemble come from many places around the world with wages as high if not higher than in the United States.
More than a third of what you pay for an iPhone ends up in Japan, because that’s where some of its most advanced components are made. Seventeen percent goes to Germany, whose precision manufacturers pay wages higher than those paid to American manufacturing workers, on average, because German workers are more highly skilled. Thirteen percent comes from South Korea, whose median wage isn’t far from our own.
Workers in the United States get only about 6 percent of what you pay for an iPhone. It goes to American designers, lawyers, and financiers, as well as Apple’s top executives.
American-based companies are also doing more of their research and development abroad. The share of R&D spending going to the foreign subsidiaries of American-based companies rose from 9 percent in 1989 to almost 16 percent in 2009, according to the National Science Foundation.
What’s going on? Put simply, America isn’t educating enough of our people well enough to get American-based companies to do more of their high-value added work here.
Our K-12 school system isn’t nearly up to what it should be. American students continue to do poorly in math and science relative to students in other advanced countries. Japan, Germany, South Korea, Canada, Australia, Ireland, Sweden, and France all top us.
American universities continue to rank high but many are being starved of government funds and are having trouble keeping up. More and more young Americans and their families can’t afford a college education. China, by contrast, is investing like mad in world-class universities and research centers.
Transportation and communication systems abroad are also becoming better and more reliable. In case you hadn’t noticed, American roads are congested, our bridges are in disrepair, and our ports are becoming outmoded.
So forget the debate over outsourcing. The way we get good jobs back is with a national strategy to make Americans more competitive — retooling our schools, getting more of our young people through college or giving them a first-class technical education, remaking our infrastructure, and thereby guaranteeing a large share of Americans add significant value to the global economy.
But big American-based companies aren’t pushing this agenda, despite their huge clout in Washington. They don’t care about making Americans more competitive. They say they have no obligation to solve America’s problems.
They want lower corporate taxes, lower taxes for their executives, fewer regulations, and less public spending. And to achieve these goals they maintain legions of lobbyists and are pouring boatloads of money into political campaigns. The Supreme Court even says they’re “people” under the First Amendment, and can contribute as much as they want to political campaigns – even in secret.
The core problem isn’t outsourcing. It’s that the prosperity of America’s big businesses – which are really global networks that happen to be headquartered here – has become disconnected from the well-being of most Americans.
Mitt Romney’s Bain Capital is no different from any other global corporation — which is exactly why Romney’s so-called “business experience” is irrelevant to the real problems facing most Americans.
Without a government that’s focused on more and better jobs, we’re left with global corporations that don’t give a damn.
Professor Reich fails to acknowledge that full employment is not an objective of businesses. Companies strive to keep labor input and other costs at a minimum. Private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role.
The non-human factor of production is the product of tectonic shifts in the technologies of production. Human-level artificial intelligent machines and digital computerized operations are and will continue to destroy jobs or degrade job opportunities because increasingly machines are providing skills and abilities previously unique to human workers. The advent of truly intelligent systems of production is effectively increasing the size of the work force beyond that provided by human workers. Thus, the idea of job creation for humans is a dead-end proposition and calls for big jobs programs such as WPA-type projects to rebuild America’s infrastructure are worthwhile but the resulting jobs, financed by borrowing or tax redistribution, are temporary and disappear once the project work has been completed. Corporations embracing technological innovation and invention in the form of the non-human factor of production understand that their profitability increases because machines work for nothing more than the cost of their manufacture and maintenance. When “cheap” labor becomes scarce, then corporations will pursue aggressively employing “machines” to replace human labor and the impact will be catastrophic for ordinary people dependent on jobs alone. As the cost of computer-controlled machines become less than the cost of human workers, and the job sills and productivity of the machines exceed those of human workers, intelligent “machines” will rapidly replace human workers. The increase will be exponential, and each generation of intelligent machines will be more powerful and less expansive than the one before.
It is the full utilization and application of technological innovation and invention in the form of intelligent machines that is the future and the economic engine that can result in growth of 15-plus percent of the GDP. But unless we restructure the mechanisms by which people acquire ownership in these “machines” the resulting levels of productivity growth via technology would be devastating to human workers whose income from wages and salaries would no longer exist or be limited, except for a minority of top-echelon educated individuals necessary to the design, engineering, and operation of the machines. As for the masses, the middle-class and poor, the current job-focused economic model relies on the sale of their labor as their primary source of income.
Reich and other conventional wisdom thinking economists and public policy experts do not address the fact that the economic value of labor is being constrained by the rapidly increasing capabilities and falling cost of advanced digital computerized automation. Simply stated: if what labor can earn is based on supply and demand, and the supply of workers is rising due to growing world population, while the demand for workers if falling because of improved productivity, the market value of labor can only go down. Compound this with the exponential growth of job-destroying and degrading technology and the result will be the disastrous collapse of middle-class income.
What is needed is a modern-day Homestead Act, which I and others refer to as the Capital Homestead Act (see http://cesj.org/homestead/index.htm).
The policies and programs recommended (also see my article “Democratic Capitalism And Binary Economics: Solutions For A Troubled Nation and Economy” at http://foreconomicjustice.com/11/economic-justice/ or follow me on Facebook at http://www.facebook.com/pages/For-Economic-Justice/347893098576250 and http://www.facebook.com/editorgary) provide mechanisms for achieving rapid economic growth and widespread private, individual ownership of future productive capital investment in the form of intelligent machine technologies, robotics and superautomation in a manner such that everyone benefits and no one loses. Under this platform, those who are ambitious, hardworking, and successful wold continue to be rewarded for their achievements, with rapid growth providing opportunities for prosperity and affluence. Jobs, at least in the short term would be plentiful and due to rapid and sizable economic growth deficits would shrink. Financing for small businesses and opportunities for entrepreneurship would abound. And owner-consumers would have plenty of money for consumption so that market demand for the products and services produced would be strong and steady.
Our present scenario relies on jobs ONLY for the 99 percent. No jobs equals no income and thus no consumer demand. As businesses minimize labor costs, a further shortage of consumer-customers result. And with fewer customers, businesses need fewer workers, which leads to fewer jobs. The result is a downward spiral that can only be fixed by a upward spiral reversal of economic growth simultaneously with broadened private, individual ownership in future productive capital investment. By stimulating economic growth in this manner, in the short term, increased investment would create demand for labor workers to build new machines, factories, plants, and infrastructure to facilitate commerce. Thus, jobs would be created that generate income and market demand increases, and such investment would cause business corporations to hire and invest even more. As investment spending pays for itself, once paid for it creates income for investors from dividends, interest, or rent. Thus, ordinary Americans would benefit from dividends through investments made through Capital Homesteading, which would be used to buy the new products and services that their investments produce. Dividend income to every man, woman and child leads to more customers, which creates more profits, which creates more dividends, which creates more customers. The result is an upward spiral of economic growth putting ALL Americans on a path to prosperity, opportunity, and economic justice.
