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Because We Can

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carrier-performance-17

If you’ll forgive me for honing in on Erik’s racket, Dayen notes that Carrier is shutting down its Indiana plant even though it’s part of a profitable section of a profitable company:

A look at United Technologies’ annual report reveals even more good news: Commercial and industrial products, Carrier’s category, make up over half of UTC’s $56 billion in net sales. Climate, Controls & Security had 3 percent growth in 2015, the highest in the company; it was the only division to increase its profit margin year-over-year. “Organic sales growth at UTC Climate, Controls & Security was driven by the U.S. commercial and residential heating, ventilation and air conditioning (HVAC) and transport refrigeration businesses,” according to page 14 of the report. In other words, air conditioners – what the workers are making in Indianapolis – drove the growth of the best-performing facet of United Technologies’ business.
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So why would a profitable, growing business need to ship jobs to Mexico? Because their shareholders demanded it.

He also makes a very important point about how this isn’t just about trade deals, but about changing norms:

Things like free trade and opening the doors to competition with China are the tools by which shareholders are satiated with hefty corporate profits. But the cause is the philosophy of shareholder value, the idea that a corporation exists solely for the benefit of its investors. While this may sound intuitive, that’s just because it’s been drummed into our heads by every business page and CNBC shouting head for decades. The thing is, shareholder value is actually a relatively new phenomenon.

It’s not that trade deals are unimportant. But, in particular, tariffs have limited value to stop capital movement when the labor costs are so much cheaper. (And, of course, a high tariff regime would also limit the purchasing power of workers.) There’s a broader problem in that corporate norms increasingly place little or no weight on the interests of workers or communities or anything but shareholder value. I don’t have a good solution for how to rearrange the incentives (although steeper progressive taxation would be a good start), but it’s a serious problem.

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  • Kalil

    I have a good solution: (significantly!) increased worker ownership of companies. Make the shareholders the workers, and lo and behold, the shareholders will be interested in the welfare of the workers.

    ‘course, it’ll be kind of hard to implement such a change without some pretty dramatic legal and/or cultural shifts. But yah – I think that’s the direction we need to go if we want to restore some amount of ‘justice’ while retaining something that looks roughly like our current capitalist system.

    • jim, some guy in iowa

      is “direct” worker ownership better?- ’cause isn’t retirement funds wanting/needing big returns on their investments one of the big drawbacks of the 401(k) economy?

      • JustRuss

        Winco, a western supermarket chain, is employee-owned. They do very well by their employees, and are quite profitable. So it can work.

    • Crusty

      Do you mean make the workers the only shareholders? Cuz that won’t work.

      • Brett

        Depending on how you do it, it could work. It does mean you’re foreclosing off the possibility of equity investments from outside, though. That could be a problem for risky ventures that require a lot of startup capital, unless you re-jigger the rules on partnerships.

    • Tyro

      I am a member of a residential coop, and basically I have come to the conclusion that ordinary people, even with a direct interest in the well being of an institution, aren’t professionally qualified to make decisions about such things, and the organization draws people into leadership who both have control issues AND lack accountability for their decisions.

      • Brett

        Coops tend to run the best when they’re made up of people with similar skills and businesses, who can mostly work without a lot of supervisory direction required (think agricultural cooperatives, etc). It’s a lot harder when the firm requires a serious division of labor, and bigger cooperatives usually have a kind of indirect democracy at work (like with Mondragon).

    • DrDick

      As a syndicalist socialist, I advocate 100% worker ownership, which works very well indeed.

      • You are?

        How many newspapers run your comic?

      • Brett

        Mondragon shows some of the issues you run up against with size and specialization in cooperatives, though. It works because they run it as an indirect democracy (workers elect the governing council, which supervises and hires/fire managers), and because they got the “finance” and worker mobility sides of it right.

        Still, it is a big improvement over your average giant corporation in terms of worker compensation and control. The executive-worker pay ratio is much better than firms of similar size, although I wonder how sustainable that would be in a market with lots of giant cooperatives – it probably helps Mondragon with management retention that their business setup is so different from the average firm.

  • apogean

    Well, as Krugman has pointed out repeatedly, today’s trade deals are often not *free* trade deals, being as they focus more on harmonizing IP law, dispute resolution, and the like. They don’t have anything to do with arguments about comparative advantage, consumer surplus, and tariff levels! Instead they reflect a very specific regulatory approach to international trade *regulation* and the justification is political rather than economic.

    • Ransom Stoddard

      1) Today’s trade deals didn’t create the economic shifts that this post is alluding to. (And Krugman, as well many who oppose the TPP on the aforementioned grounds, was a fervent supporter of those.)

      2) The TPP includes provisions about intellectual property and dispute resolution. It also contains provisions reducing various barriers in Pacific Rim countries to the buying and selling of products (agriculture, textiles, financial services etc.) from/to abroad. I’m not sure whether it’s accurate to say the TPP is mostly about either, but it’s definitely inaccurate to say it doesn’t deal with vanilla trade issues.

      • apogean

        Sorry, I’m not saying it doesn’t deal with vanilla trade issues *at all,* but that a lot of the tariff barriers have come most of or all the way down already (the big exception being agriculture). We have gone most of the way down the road of eliminating tariffs at this point, so any purported gains for free trade deals based on those arguments are subject to diminishing returns (agriculture excepted).

        • Linnaeus

          The “managed” aspect of trade deals deserves more attention than it typically gets, so I’m glad that Krugman has been pointing this kind of thing out.

      • DrDick

        Wrong again, kimosabe. They are very much implicated in these problems.

        • I think you may have missed his point. Note the term “today’s” and the distinction between Krugman on TPP vs. “those deals.”

          NAFTA is one of “those” deals he’s referring to, which R.S. is saying did “create the economic shifts that this post is alluding to.”

          • Ransom Stoddard

            ^exactly.

            • DrDick

              My apologies. I obviously misread tat. I blame not enough coffee.

    • DrDick

      As Erik has repeatedly pointed out, trade deals have never primarily been about trade. They have been about liberating international capital from regulation or allowing it to mercilessly exploit developing countries.

  • Schadenboner

    If you’ll forgive me for honing in on Erik’s racket

    Not at all. Please please please please do.

  • The Pale Scot

    Because their shareholders demanded it

    This makes it sound like a bunch of pensioners are standing outside Carrier HQ yelling for bigger returns.

    Instead, probably a cabal of hedge funds has taken a big position AND secured ownership of primary voting shares with the intention of forcing Carrier to move it’s production outside the USA. After that’s done they’ll sell the shares, monetize most of the short term financial gains for themselves and move on.

    The only way to stop this is altering the laws covering corp. charters. It’d be nice if some “constitutional originalist” started bitching about how current corp. are nothing like they were before the railroads and Rockefeller existed.

    • AMK

      The closest thing the founders had to private “corporations” were plantations, which tells you a lot about the real thrust of “originalism.”

      There were the big joint-stock trading houses (East India Company, VOC, etc..) but those were government-backed imperial monopolies; rich people could buy into them, but decisions were ultimately made by the state as the controlling “shareholder.”

      • BigHank53

        Chase Manhattan was given a corporate charter in the 1600s to bring a reliable source of drinking water to Manhattan Island. Part of the charter gave them the right to issue promissory notes, which meant they could act as a bank, which they promptly commenced doing. Somehow they never did get around to building that water system, either.

        • N__B

          Actually, the Manhattan Company did provide water. The problem was, it was terrible quality and limited in quantity. But they remained a player in that game until the Croton System opened.

          If I remember correctly, there were no non-Federalist banks in NY at that time, and Burr created the Manhattan Company to remedy that through the loophole of the company being allowed to reinvest its cash.

          Oh yeah – circa 1800, not 1600s.

          • BigHank53

            Thanks–I was operating off some spotty memories of an article in Science and Technology that I read years ago.

    • erick

      Yeah, they’ll make a big gain in the short term gain and be happy. They won’t care that in a few years the product quality will have deteriorated due to the less skilled workers and constant cost cutting.

      One thing that could help is taxing short term capital gains much higher to incentivize long term investment. Another thing could be to tax dividends less that capital gains to incentivize investing in low growth profitable companies.

      • BGinCHI

        See Maytag, which used to be an American-made, high quality brand and is now dogshit no one buys.

    • Derelict

      . . . probably a cabal of hedge funds . . .

      It’s not even anything that beneficent or even specific (leaving aside the CEO’s coming cash bonanza). It’s Wall Street and the analyst’s expectations. There was a study published last year (too lazy to go dig it up) that found corporate stock prices jumped when plans were announced to move jobs out of the US–even when it was absolutely clear that doing so would reduce future profitability. The stock price merely reflected the analyst expectation that offshoring jobs will always lead to profit growth, even when it won’t. (Please try to remember that these people are geniuses.)

      And, of course, CEOs have every incentive to push stock price up over every other consideration, including such quaint notions as profitability and even medium-term survival of the company. (Please remember that CEOs are also geniuses.) Since their compensation packages are usually tied to stock price, how can they not push stock price over any other consideration?

      • Manny Kant

        Yeah, this stuff isn’t even really about shareholder value in the long run. It’s about executives basically running a pump and dump operation to maximize stock price in the short term.

    • River Birch

      If we’re going to speculate about causes, we have to understand the facts. Carrier is owned by United Technologies, which has a market capitalization of $83 billion and is one of the 30 companies that make up the Dow Jones Industrial Average. It is too big to be taken over by hedge funds. Whether it has been targeted by activist investors, who can work their sorcery with very small percentages of shares outstanding is not something we must puzzle over; it is possible to find out the answer and it appears to be no.

      It’s rather more straightforward than all that. “The market,” consisting largely but not exclusively of the kinds of firms that manage your 401k, want United Technologies, already a profitable company, to become more profitable. They want its margins to grow, and if they don’t, they will sell its shares and the CEO will not make as much money or possibly lose his job.

      As progressives we need to get much more sophisticated in our understanding of these things. All the “but Carrier wasn’t even losing money!” comments (of which this is not one, admittedly) are disheartening in this regard.

      Or what Derelict says below, less grumpily.

      • Crusty

        +1

      • Linnaeus

        As progressives we need to get much more sophisticated in our understanding of these things. All the “but Carrier wasn’t even losing money!” comments (of which this is not one, admittedly) are disheartening in this regard.

        The point of these comments, though, is as a counterargument to the stated reason for Carrier’s move, which was to “stay competitive” and “protect the business for the long term” (what the company official said to the workers in the now infamous video). Maybe that argument needs to go further, but it’s still worth highlighting that the Carrier division of United Technologies is profitable and has steadily been so.

  • Torches & pitchforks are the answer. Stop deluding yourselves that legal & political solutions are even possible.

    • Peterr

      It appears that American-made pitchforks are hard to come by.

      Coincidence, or strategic long-range planning?

    • UserGoogol

      Conservatives are the ones with all the guns. Violent means favor violent philosophies, and it’s clear which side that is.

      • tsam

        I got plenty of my own guns, as do many other liberals. I have no interest in getting in a gunfight with anyone, but…you know. Let’s just say the gun threat from those fuckers isn’t quite the threat their cowardly little microprocessors want it to be.

  • wengler

    Executives with MBAs don’t get credit with standing still. If they’re not breaking things, they’re not getting respect from their fellow corporate executives.

    • Scott Lemieux

      DISRUPTION! By which we mean firing people.

    • Warren Terra

      I feel this is hugely important. In theory, someone in charge of an established, successful, profitable company like Carrier is in somewhat of a custodial job – it’s their job not to kill the goose that lays the silver eggs.

      But they’re not going to get rewarded for keeping things ticking along; the will be rewarded for appearing dynamic, for not just sitting there but doing something. Responsible caretakers aren’t worth CEO type pay, after all, and you can’t buy a private island with the contentment of your workers and customers.

      • Derelict

        Keep in mind, too, that Wall Street expects every publicly traded company to post double-digit profit growth every year for eternity. Merely being profitable is not enough. If you read the financial rags, you can find stories every day of companies that are stable, highly profitable, and getting slaughtered in the stock market because profit growth is only in single digits.

        • I hate to split hairs, but they don’t expect it, they know that the economy is only so big and it constrained by any number of factors. And despite that they demand double digit growth. Why? because when companies set and struggle to meet unrealistic goals, some of them fail, making opportunities for other companies to succeed and fail in their place. Wall street likes churn. They hate slow steady and predictable. A company that steadily posts a 5% profit every year might as well be dead to them , because their stock trading volume will be very low. When stock prices are bobbing up and down like a cork on the waves, (like they do when some dramatic corporate cost cutting effort succeeds wildly or fails miserably) that gives their fancy automated trading algorithms something to work with. They like that people buy and sell stocks like they were gambling at a casino because they get a cut of every transaction. Wall Street isn’t about investment, it’s about speculation. They would make drastically fewer commissions if people could reliably buy into Amalgamated Hovercraft, hang onto the stock for forty years and sell it when they retire. They want people, and more importantly pension funds, buying into the next big thing as often as possible, and losing a few percentage points to commissions and fees every time that investment capital gets reallocated.

          • Linnaeus

            Obligatory link. (Slightly NSFW)

          • Brad Nailer

            This is the mob that we’re supposed to want to entrust the Social Security program to, ’cause we’ll make more money on Wall Street! Anybody who didn’t get the message in 2007-2008 deserves to lose their fucking savings.

          • Mellano

            Not to mention Wall Street itself is comprised of publically traded banks that need to hit arbitrary, high earnings targets through brokering securities and managing IPOs and whatnot (mostly whatnot). Even the supposed “investors” are mostly fragile partnerships prone to withdrawls or at least no new money coming in if they can’t boast huge paper gains. Turning and turning in the widening gyre …

  • heckblazer

    What to do? You’d probably have to change Delaware corporate law. As the chancellor said in the eBay v. Newmark decision:

    Directors of a for-profit Delaware corporation cannot deploy a rights plan to defend a business strategy that openly eschews stockholder wealth maximization—at least not consistently with the directors’ fiduciary duties under Delaware law.

    Because as things stand it’s not just “because we can”, it’s also “because we have to”.

    • heckblazer

      I found this essay, “Our Continuing Struggle With the Idea That For-Profit Corporations Seek Profit” by former chancellor and current DE supreme court justice interesting (former chancellor means he sat on the Delaware chancery court, which is where cases on the governance of Delaware corporations are heard).

    • dr. fancypants

      That’s a strained reading of what the judge was saying in eBay v. Newmark. The underlying issue in that case is that the board’s fiduciary duties to the stockholders prevent it from actively screwing over a minority stockholder, if the action has no business justification.

      The business judgment rule makes it laughably easy to justify a business plan that isn’t the most profitable one from a pure accounting standpoint. These companies really do just make these decisions because they can, and not because they have to.

    • Amadan

      It’s not so much the rules of fiduciary duties as the policies that validate them. In other words, you can change the fiduciary rules concerning the precise duties of directors (and to whom they are owed), but unless you also change your economic and social perception of employment and the position of employer and employee in society, it is unlikely to result in any real change.

      F’rinstance, the only example I can think of in the Common Law world of the fiduciary duties being tweaked in this way is section 224 of Ireland’s Companies Act 2014 (which repeats an earlier version in a 1990 Act). This provides that directors’ duties include a duty to have regard “to the interests of the company’ employees”. That duty is owed to “the company” (rather than to employees or shareholders), so it can only be enforced in the company’s name (or by a derivative action etc). The result would be to preclude an action such as the one mentioned in comments seeking to overturn directors’ acts that didn’t act exclusively to maximise shareholder value. It’s a nice bit of window-dressing but makes damn all difference in overall terms when brute economic forces can steam-roller employment regardless of what the current management want.

      Another approach could be the Dual Board used in Germany and other European public companies, which gives employees a strong voice in the supervision of the company’s management. (I would dearly love to see Mitt Romney or Martin Shkreli explain the virtues of that system…) But even that is under pressure in Germany – once again, from investor interests (such as pension funds) because of the need for higher returns in the face of demographic changes and the shift of manufacturing to Asia.

      The only thing that has worked, as I said, is a policy shift (such as occurred across Europe under EU influence) to emphasise the social value of maintaining employment and employee engagement in management. That is what gave us the presumption that dismissals are unfair, minimum notice and redundancy payment laws, strong state-backed mechanisms for resolving labour disputes and a heavy emphasis on workplace safety and well-being. Yes, it’s expensive and it has a serious cost in terms of flexibility and capital mobility. Against that, it gives you a society where people can live, not just survive.

  • BGinCHI

    How about a much larger tax on shareholder profits?

    I suppose the downside is that would harm retirement funds. But the shitty structure here is that to insure retirement (or its promise), we are collectively killing not only jobs, but other safety nets (including retirement).

    Bottom line: we have a shitty overall welfare system that does not protect against perverse corporate incentives.

  • Manju

    tariffs have limited value to stop capital movement when the labor costs are so much cheaper.

    Why? If the tariff is high enough to offset the cheaper labor, it should work like a charm. Or just ban the import. Ronald Reagan Harley Davidson, iirc.

    And, of course, a high tariff regime would also limit the purchasing power of workers.

    This is true of any regime that increases the cost of labor: a closed-borders regime, a high-minimum-wage regime*, etc. Why balk here?

    *I am aware of empirical studies that demonstrate that an increase in the minimum wage does not increase unemployment / decrease real income of low skilled workers. This does not contradict my point.

    Why? I’m happy to discuss but Long/short : u have a similar situations with the other scenarios…textbook econ also says that outsourcing jobs and importing low-skilled immigrants drives down the wages of the natives who hold the jobs in question. Empirical studies tell a different story (but don’t actually contradict the textbook).

    • leftwingfox

      This is why I favor indexing tariffs to the difference between the worker wages and the minimum wage. If a widget costs $1 in labor in mexico and $8 in the US based on the federal minimum wage, you put a $7 tariff on the widget. If the factory pays the workers more, the tariff is reduced.

      That would still allow international trade and regional advantages, but reduce the incentive to subvert wage standards for workers while taking advantage of the same wage standards to achieve a profit.

    • Bill Murray

      textbook econ also says that outsourcing jobs and importing low-skilled immigrants drives down the wages of the natives who hold the jobs in question. Empirical studies tell a different story (but don’t actually contradict the textbook)

      well they don’t actually contradict the textbook because the textbook makes a bunch of assumptions that have no relevance to the world the economy occurs in. So textbook econ is rather unresponsive to the actual economy and in general should not be used for setting policy

  • The Invisible Hand

    Don’t worry, God will punish them for being greedy! No need for us mere mortals to do anything, not with an eternity of hell already awaiting them.
    Poor people have so easy when it comes to getting into Heaven.

    So just let God deal with it.

  • On the history of stakeholder capitalism, there is a good paper by Andy Haldane, chief economist to the Bank of England. Google his page of papers there. An interesting man.

  • Frank Wilhoit

    When U. S. manufacturers first began exploring overseas production ~1971 the driver was not to reduce labor costs; it was to shed product-liability exposure. It didn’t work, but that was the game.

    By the time all of the hidden costs are taken into account, the shareholders don’t gain anything. The driver today is emotional and it is very specifically to harm the workers: to take revenge on them for being thieves, for daring to unionize and demand benefits.

    The situation is, as you say, intractable, but one useful reform might be to make it harder to hide the hidden costs.

    There is no legislation or regulation anywhere near as powerful as the accounting manual.

    • Just_Dropping_By

      The driver today is emotional and it is very specifically to harm the workers: to take revenge on them for being thieves, for daring to unionize and demand benefits.

      If this was actually true, then everything would already be offshored.

  • alex284

    Yeah, I kinda wish dday’s article was a bit better. Several reason:

    1. The whole “it was profitable, like really profitable” argument misses the point – was it the most profitable? I have no idea and it wouldn’t be unheard of for a company to move a factory even though it expects no increase in profits, but later dday seems to answer “no.”

    This is important because dday argues that the plant didn’t “need” to move, as if making a profit greater than 0 is the only thing that would interest a rational manager when it’s not.

    OK, this is a quibble.

    2. Mexican labor is cheaper, but is that the only reason the factory is moving? We keep on hearing about how labor is cheaper abroad with no mention that American workers, for a variety of reasons, are more productive than workers in poorer countries (better education, better public infrastructure, less transport costs, etc.). If the only reason was the change in wages, why didn’t this factory move decades ago? Mexican wages were a fraction of American wages in the 90’s too.

    Again, this doesn’t take away from dday’s point, I’m just curious. Other companies (like Apple) have stated that they move to low-wage countries for reasons other than wages, like limited liability when it comes to labor conditions (as loomis often points out) and faster drawing board-to-store times.

    3. When was it that corporations didn’t care about shareholders’ returns? Are we talking about the brief post-war decades or is dday going back to the 19th century? And since dday points out that they are doing worse when it comes to providing returns, maybe that’s not their main concern now or the main change? perhaps the real change is how shareholders expect faster returns (i.e., they’re short-term greedy now instead of long-term greedy)?

    • Derelict

      To your number 3, the responsibilities of CEOs of publicly traded corporations have changed dramatically over the last 50 years. Back in the ’60s and ’70s, the primary responsibilities were keeping the company profitable for long-term survival, and finding new markets for the company’s products. Companies were stable and could engage their employees in stable relationships; investors were kept happy through dividends, stock-rollovers, and stock splits.

      The rise of arbitrage, hostile takeovers, and changing CEO compensation packages from straight salary to stock options inverted the priorities. And with those changes, the incentives for CEOs went from long term to very short term. In some cases, the incentives became perverse enough that the survival of the company did not matter–only the value of the CEO’s stock options upon his/her retirement.

      • Schadenboner

        What caused this? Changes in tax law?

        • JKTH

          I can’t speak to some of this but my sense is that stock options became much more prevalent after a 1993 change in tax law that denied companies from deducting over $1 million of CEO compensation but specifically excluded stock options from this. There have been proposals to change that but obviously they’re going nowhere and I’m not sure it would really change things at this point anyways.

          • Brett

            That might very well be it. NPR did a story about CEO compensation and the change, with a graph showing the rather dramatic effect of the change.

        • Bill Murray

          Milton Friedman was a huge player in this shift with his Friedman Doctrine

          He wrote about this concept in his book Capitalism and Freedom. In it he states that when companies concern themselves with the community rather than focusing on profits, it leads to totalitarianism.

          In the book, Friedman writes: “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

          • sonamib

            Wow, there are really lots of things that lead to totalitarianism according to this fellow. Funnily enough, Pinochet isn’t one of them.

            • liberalrob

              Milton Friedman is one of the most evil people who ever lived. His economic theories have harmed millions, if not billions of people.

  • Pretzalcoatl

    The easy answer to prevent capital flight is for workers to seize the means of production. If only we had a socialist running for President.

  • A couple of morning thoughts.

    1) Hone away!

    2) Right now, the jobless future for the working class is something that is barely discussed, even on the left. It’s directly contributing to left protest movements like the Fight for $15 and the dissatisfaction leading to the Sanders campaign (or the Trump campaign for that matter). But we barely have a framework for even discussing these problems. That’s a huge problem.

    3) The solutions I lay out in Out of Sight–international labor frameworks that allow workers to access legal systems to sue for their rights–might or might not help in this case. If you require minimum wages to be paid no matter where American companies are sourced in order to sell in the American market, it does take away some of the incentives to move. However, as you and Dayen point out, when the wage differential is this large, those frameworks probably don’t do enough. What I wanted with Out of Sight is to hopefully contribute to a conversation about just what we should do about these problems. I can’t say it’s sold enough copies to do that. But that’s the hope. Right now, we aren’t having those conversations at all. That needs to change.

    4) It’s hard to have these conversations when the doctrine of free trade is so entrenched among many liberal intellectuals, who not only see such capital mobility as a moral neutral, but actually as a moral positive since those Indiana workers should sacrifice in order that Mexican workers who are poorer can have their jobs. This is a huge problem.

    • Crusty

      I’ll offer a variation on your #4. I agree with you that the doctrine of free trade is entrenched among liberals. But I don’t think these entrenched liberals see a need for the Indiana workers to make a moral sacrifice for poor Mexican workers. Rather, they just think that a widget factory should exist to make widgets, not to make jobs. And on top of that, they accept that these decisions are going to be driven by profitability.

      • PSP

        Read some Brad Delong. He has explicitly made the argument that free trade is good because it has enriched Chinese peasants.

        • You have a problem with this? There are far more Chinese peasants, and their standard of living before Deng’s semi-capitalist reforms was far lower than that of the poorest Americans, even discounting the famines created by Mao. I’m European. Make an argument that does not assume national bias.

          • Bill Murray

            When it comes at the expense of other workers, yes. The question seems to me to be can we do this without hurting anyone and, if not, who decides who should pay the cost?

          • njorl

            Our companies move to China because the Chinese government acts as an anti labor rights enforcement cartel. It’s nice that Chinese peasants are making money, but they are only making a fraction of the money they deserve. US companies are essentially complicit with the Chinese government in the theft of labor from Chinese peasants. If we applied punitive tariffs to the theft of labor from Chinese peasants, fewer companies would move there. Chinese peasants would perform less labor, but they would be paid more for it. US workers would perform more labor than they do now, and would also be paid more for it.

          • I’m European. Make an argument that does not assume national bias.

            Human beings live in societies. Contra Margaret Thatcher, we are not just one person and one person and one person.

            The collapse of the American middle class has consequences on our society beyond the economic harm itself. You’re a European; recognize an argument that doesn’t assume the United States cannot have a fascist government.

        • Bill Murray

          you are far too kind to him as usually DeLong’s argument was more along the lines of “Why do you hate the Chinese?”

        • Just_Dropping_By

          Is Delong’s main argument for free trade that it benefits Chinese workers or is his argument simply that such things are one of the benefits of free trade? I strongly suspect it’s the latter, not the former.

    • ProgressiveLiberal

      However, as you and Dayen point out, when the wage differential is this large, those frameworks probably don’t do enough.

      This is why you decrease the value of the dollar. Your idea is a gas tax (“require minimum wages to be paid no matter where American companies are sourced in order to sell in the American market”); mine is a carbon tax. China has proven that this works as a strategy.

      Plus, decreasing the value of the dollar decreases the trade deficit, solving your other problem – inadequate aggregate demand (or, “the jobless future” as you call it.)

      Do you see capital mobility between Seattle and Cheyenne as a huge problem? And who are these liberals who think that we should allow other countries to get away with slavery? I know it might not seem intuitive to you, but if we lived in a world with decent worker protections, we would want our fabric and clothes to be made in a lower wage country while we made other goods here. American workers are among the most productive in the world, we don’t actually want them doing menial tasks.

      And I bet you wouldn’t be complaining that we weren’t if we had full employment and wage increases – but those are separate issues from capital mobility and outsourcing.

      • Brett

        Do you see capital mobility between Seattle and Cheyenne as a huge problem?

        He might. Loomis has complained about companies moving production out of unionized factories in the Northeast, Midwest, and elsewhere to the non-unionized South.

        • ProgressiveLiberal

          So I take it he would support taxes on goods imported from right to work states?

  • wufnik

    It will not solve the immediate problem, but three things that would definitely help are (1) stop tying CEO pay to share prices, but rather to something like borrowing costs; (2) eliminate the tax deductability of interest, which will take away some of the continued incentive managements and bankers have for mergers and acquisitions (this will bear on (1) as well); and (3) go back to pre-Reagan administration anti-trust enforcement. Eliminating quarterly reporting will help too. And, yes, EL is right–the jobless future is a scary prospect, and it’s on its way at an accelerating pace.

  • koolhand21

    Sad to say but this fixation on shareholder returns wasn’t something I witnessed in my first jobs. One company, during a senior managers meeting, had an issue raised about the effect of a proposal in terms of what the “street” would say. The CEO, grumbled that he wasn’t running the company for the g-d street, he was making the decision because it was the right thing to do in the long run.
    That was 35 years ago.
    The next CEO spent most of his time making sure all his decisions were in light of what the “street” wanted. Also, too, because of large, easy to get to options as rewards, his decision very much helped himself. And with a management team similarly rewarded and a board that would rubber stamp said options, it was a nice circular benefit.
    Helped by those same board members sitting on each other’s boards.

    • liberalrob

      They Rule.

  • ProgressiveLiberal

    1) Decrease the value of the dollar.

    2) Require companies to pay US wages no matter where they set up shop, much like we require US citizens to pay US income tax no matter where they work.

    The hardest part is the political will. The answers are relatively simple.

    • Crusty

      Aside from the general ridiculousness and naivete of these suggestions, looking at number 2, poof, U.S. companies are now Cayman Island companies, Irish Companies, Luxembourg companies, Mexican companies, basically, anything but U.S. companies.

      • ProgressiveLiberal

        I’m going to assume you just don’t understand what I said.

        Do you reject the idea of a carbon tax? I thought that was the bread and butter of liberals nowadays. The point of a carbon tax is to increase the price of carbon, to decrease demand. The point of raising the dollar is the increase the price of imports, to decrease demand. Instead, demand shifts back to the US when our products become more competitive again. It’s a tax on slavery and shit wages.

        You realize that #1 covers #2? If they choose to locate abroad, or outsource their work, they pay the slavery tax…er, import tax of a weak dollar. If they choose to operate a factory themselves to avoid the weak dollar when importing, they have to pay US wages. IE, there is no gap for them to exploit.

        If we had full employment and rising wages, no one would give a shit that our shirts are made in a foreign country (except for some of us that give a shit about how people are treated.)

        A strong dollar is causing the majority of our problems right now: inadequate demand (high unemployment) and the offshoring of jobs (due to a strong dollar allowing cheap imports.) You’re never going to fix the problem until you address the source.

        • Crusty

          No, I get what you said.

          Eventually, you are going to force companies into a position where they have to decide hmmm, do we want to pay U.S. wages worldwide and be able to sell to the U.S., or keep wages low, or at least appropriate for the locale of production and just sell to China and India with their billions of people. How’s that going to work?

          I get that you’re a progressive liberal, but you show again and again that you’re kind of stupid and that your main tactic of argument is to just talk down to people and proclaim you’re more liberal than thou. You’re really just kind of stupid though.

          • ProgressiveLiberal

            No, clearly you do not get it. It is not an “either/or” situation. If China didn’t need us, they wouldn’t be selling to us now. We are still the largest first world economy on the planet.

            My point is, again, our companies can choose to pay Chinese wages to Chinese through outsourcing agreements – like they currently do – and pay the “import tax” of a weak dollar, or they can pay american wages, here or there, directly. Their choice.

            You think there is some massive market in India for $900 iPhones that could replace the US market, but apple isn’t selling to it right now because…why exactly?

            Let’s start with step one: “A strong dollar is a tax on exports, and a weak dollar is a tax on imports.” True or False?

            • Crusty

              Let’s start with this- there may be other benefits to a strong dollar that you’re not considering. True or false?

              • ProgressiveLiberal

                Sure. But on balance, cheap shit from china and cheaper travel to europe doesn’t outweigh high unemployment and low wages – at least it doesn’t for most liberals.

                Now answer my question.

    • Schadenboner

      The hardest part is the political will.

      This is the mother of all assumed wrenches.

      • ProgressiveLiberal

        It doesn’t stop liberals from pointing out a carbon tax is necessary, does it?

        You’re not going to solve this problem in an even minimally efficient way either, unless we decrease the value of the dollar. Sure, we could tax gas, ban meat, put supply limits on oil, cafe standards on cars, subsidies on solar, etc – a whole patchwork of shit – to reduce carbon emissions. Or we could just implement a carbon tax at the appropriate rate.

        Same with this shit – we could require minimum wages paid, tariffs, change corporate culture, workplace standards half way around the world, subsidies to american workers, increase unemployment compensation, stimulus, share work – again, a whole patchwork of shit – to increase employment here. Or we could confront the problem – a huge trade deficit caused by a strong dollar, sending demand (and jobs) elsewhere.

  • Halloween Jack

    I’m just wondering how Mike Pence (Mitch Daniels’ successor as governor of Indiana) is going to spin this.

    • timb

      I can answer that. Pence blames Obama and the “overly restrictive regulatory regime” from Washington DC.

      Transparently terrible, but something that most Indiana Republicans are trained to believe.

      • JustRuss

        Yep. And of course unions. You’d think people could connect the dots and realize he’s advocating for more pollution, less safety, and lower wages…but that doesn’t seem to be the case with people who vote Republican.

    • brewmn

      As a resident of the Land of Lincoln, I’m guessing he’ll blame it on Illinois. Somehow.

      • Halloween Jack

        Not now that Illinois has a GOP governor.

  • Brett

    I don’t have a good solution for how to rearrange the incentives (although steeper progressive taxation would be a good start), but it’s a serious problem.

    You need to build a countervailing force directly into the firm’s governance. The employees of the firm (managerial and non-managerial) should elect half of the seats on the Board of Directors, with the Chairman being whoever can win majority support at the table. Half of the company’s shares should be held in trust in the firm Publix style, with the dividends being paid out to employees when they happened.

    Also, we really need a law allowing communities and groups of workers to buy out their plants before shutdown if they so choose, if they can raise the financing and work out a proposal for managing it independently.

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