Wednesday, February 20, 2008

The Dilemma of American Corporations and Workers

The Dilemma of American Corporations and Workers

by Richard Backus

Go To Original

American corporations have been moving their export-oriented jobs overseas and will not be hiring American workers until differential wage rates decrease substantially. U. S. wage rates, as well as EU wage rates, are considerably above the wage rates of those of workers in Asia. What is called for now are international minimum wage and working standards.

At the end of the second world war wage rate differentials were appropriate because the productivity of foreign workers was greatly diminished with the destruction of plant and equipment during the war. But things are different now. There is an abundance of capital throughout the world and foreign workers have access to the same advanced production technology and equipment previously enjoyed only by western workers. Low productivity of foreign workers had resulted in low wage rates in order for these workers to be competitive worldwide. Now, with foreign productivity nearly equal to that of western workers, these foreign workers should be paid more. But they are not. This results in the wage disparity between them and western workers, resulting in the movement of jobs overseas.

If this wage disparity is not corrected, all jobs which can be done by overseas workers will reside overseas . Now, after most blue collar production work has been moved overseas, white collar workers as well as many professionals in the U.S. will see their jobs disappearing as well. This group includes accountants, lawyers, researchers, engineers, scientists, microbiologists, biologists, and so on. Anything which a person can do at a desk in the U.S. can be done at a desk in Asia(and at a third of the cost in the U.S.), and any interaction with others can be done via teleconferencing or facs/telephone. The big questions are: how this occurred in the first place, what will be the consequences, and how it can be resolved to provide fair employment to American workers.

This problem started with the failure of the international exchange rates to adjust to changes in the productivity of foreign workers. This was due to the failure of the U.S. government to allow the dollar exchange value to adjust properly to trade imbalances. After 1970, the exchange rates needed to float in order to prevent the loss of bank assets(especially gold) in the U.S . Floating exchange rates would have corrected the trade imbalances by a reduction in wage differential between U.S. and foreign workers and consequent enhanced price competitiveness of American-made goods.

Various administrations allowed increases in the dollars exchange rate, but stopped it from falling. A particularly egregious one occurred in 1980-1984 during the Reagan years. In effect, the dollar was allowed an unhampered rise but not allowed to fall to a "competitive" level, completely undermining the effectiveness of floating exchange rates. This caused substantial(international) price increases for U.S.-made goods. This period initiated the vast increases in trade deficits we are currently experiencing.

The foreign trade imbalances increased but the U.S. Federal Reserve was not required to give foreign dollar-holders gold to offset these imbalances. Instead, these foreign dollar-holders have accepted government IOU's(treasuries) and have been spending the remainder of the vast excess of dollars on U.S. real estate(causing the current bubble) and U.S. stocks and bonds(further exacerbating the stock market bubble and crash of 2001). But even real estate and stocks/bonds are not unlimited and these overseas buyers will soon run out of things to buy. In the meantime, jobs will be steadily ending up on foreign shores. The ultimate consequence of these government policies will be a 'hollowing out" of the productive capabilities of the U.S. and the demise of the middle class(and serious damage to the profession classes). Worse yet, ultimately the U.S. will run out of assets to sell to foreigners and the dollar will will be bypassed as a hard currency. If this happens, the exchange rate will experience a drastic fall and the standard of living of all citizens will accompany it. But, unluckily for all, current government policy being what it is, this will occur only after the great majority of assets in the U.S. are foreign-owned. Many workers in the U.S. do not care who they work for, but foreign ownership has many pitfalls. Foreign owners of large manufacturing facilities can simply slow down production improvements and efficiency in the U.S. so that manufacturers in their home country will have a competitive advantage over their U.S. counterparts. They may also move the company headquarters overseas, diminishing already insufficient U.S taxes collections. They could undermine wartime manufacturing to benefit their home countries.

These actions would cause: increased unemployment in the U.S., decrease social spending in the U.S., and increased production problems during potential world conflicts. For this reason, most foreign countries restrict foreign ownership of home corporations to less than 50 percent, and greatly limit the extent of foreign investment (to avoid stock market/real estate bubbles and a collapse in reserves during crises). They also severely restrict foreign ownership of a host of strategic manufacturing, mining, and petroleum-based businesses.

The U.S. government should be doing the same. I will leave what can be done to correct these circumstances for a future article. A good start would be to reverse those policies which have caused these problems, one of which is exchange rate manipulations which undermine U.S. worker's ability to earn a living. While China refuses to raise its exchange rate, the U.S. refuses to allow its to fall, which ultimately would have the same effect. Other policies which would enhance U.S. worker's chances to compete internationally would be the establishment of international minimum wage and work standards, and the establishment of penalties for non-compliance by our competitors.

The establishment of an international minimum wage would solve not only the American worker's dilemma, but would increase the standard of living of citizens throughout the world . The first step which should be taken, however, is to make the American public aware of those policies that have got us into this mess, and to encourage them to take action to prevent them from occurring again.

Richard Backus, author of this article, is a free-lance journalist specializing in political economy and politics. He resides in Miami Beach, Florida and his personal website is uncensoredops.blogspot.com

No comments: