By Les Leopold, the director
of the Labor Institute, who is currently working with unions and community
organizations to build the educational infrastructure for a new anti-Wall
Street movement.
Honestly, I don’t usually talk
back to the TV. But I couldn’t contain myself during Poppy Harlow’s December 10
interview with John Feltner, the United Steelworkers vice president of the
Rexnord local union where 300 jobs are moving from Indianapolis to Mexico.
In discussing the move, Harlow
twice
resorted to the much repeated trope that the loss of American manufacturing
jobs is really about automation and technology.
HARLOW: What is the number-one
thing you would like to see the incoming administration do that you think will
help people in your situation? Because, you know, Donald Trump points to global
trade as being the reason that your jobs are going away. That’s not all of it.
A lot of it is, as you know well, automation and technology.
FELTNER: These companies are leaving
to exploit cheap labor. That’s plain and simple. If he can change those trade
policies to keep those jobs here in America, that’s what we need. We need
American jobs, not just union jobs.
HARLOW: But you agree it won’t
save all of them, because of automation, because of technology.
Please Poppy, come off it!
Feltner is right. Offshoring is about the rush to cheap labor, not about
automation and new technology. The move to cheaper labor in Mexico, in fact,
allows corporations to avoid investing in new technologies. Rexnord and Carrier
are moving the same old technologies to Mexico, piece by piece.
Ever Hear of Germany?
Instead of regurgitating
meaningless economic platitudes, newscasters and pundits should confront some
facts about Germany’s extensive manufacturing sector.
Fact #1: Germany uses the most
advanced technologies in the world.
Fact #2: Manufacturing workers
in Germany earn much more than their U.S.
counterparts: 44.7% more in textiles, 44.6% more in chemicals, 34.2% more
in machine tools, and 66.9% more in the automobile industry.
Fact #3: Manufacturing jobs
make up 22% of the German workforce and account for 21% of the GDP. U.S. manufacturing jobs make up
only 11% of our workforce and only 13% of our GDP.
Fact #4: The economic gods
either speak German or the Germans are doing things differently from their U.S
counterparts.
Rather than divine
intervention, German manufacturing depends on producing high-quality products
that are so good people the world over are willing to pay a premium for them.
The most sought-after, high-end motor vehicles (Mercedes, BMW, Audi) and
kitchen appliances (Bosch, Miele) are produced by German companies using highly
trained, well-paid workers and the most advanced technologies.
The German manufacturing
juggernaut depends on vast investments in innovation (by their government), in
research and development (by their firms), and in worker education and training
(by both the government and the firms).
U.S. Addicted to Stock
Buybacks
American manufacturers have
chosen a different path. Their CEOs grow wealthy by financially strip-mining
their own companies, aided and abetted by elite financiers who have only one
goal: extracting as much wealth as possible from the company while putting back
as little as possible into production and workers.
The heroin driving their
addiction is stock buybacks—a company using its own profits (or borrowed money)
to buy back the company’s own shares. This directly adds more wealth to the
super-rich because stock buybacks inevitably increase the value of the shares
owned by top executives and rich investors. Since top executives receive the
vast majority of their income (often up to 95%) through stock incentives, stock
buybacks are pure gold. The stock price goes up and the CEOs get richer. In
this they are in harmony with top Wall Street private equity/hedge fund
investors who incessantly clamor for more stock buybacks, impatient for their
next fix.
For the few, this addiction is
the path to vast riches. It also is the path to annihilating the manufacturing
sector. (For a definitive yet accessible account see “Profits
without Prosperity” by William Lazonick in the Harvard Business Review.)
Wait, wait, isn’t this stock
manipulation? Well, before the Reagan administration deregulated them in 1982,
stock buybacks indeed were considered stock manipulation and one of the causes
of the 1929 crash. Now they are so ubiquitous that upwards of 75% of all
corporate profits go to stock buybacks. Over the last year, 37 companies in the
S&P 500 actually spent more on buybacks than they generated in profits,
according to Buyback Quarterly.
Little wonder that stock
buybacks are a major driver of runaway inequality. In 1980 before the stock buyback era,
the ratio of compensation between the top 100 CEOs and the average worker was
45 to 1. Today it is a whopping 844 to 1. (The German CEO gap is closer to 150
to 1.)
Germany holds down its wage
gap, in part, by discouraging stock buybacks. Through its system of
co-determination, workers and their unions have seats on the boards of
directors and make sure profits are used to invest in productive employment. As
a result, in Germany stock buybacks account for a much smaller percentage of
corporate profits.
Between 2000 and 2015, 419
U.S. companies (on the S&P 500 index) spent a total of $4.7 trillion on
stock buybacks (annual average of $701 million per firm). During the same
period, only 33 German firms in the S&P350 Europe index conducted buybacks
for a total of $111 billion (annual average of $211 million per firm). (Many
thanks to Mustafa Erdem Sakinç from the Academic-Industry Research Network for providing this
excellent data.)
Let’s do the math: U.S. firms
as a whole spent 42 times more on stock buybacks than German firms!
Little wonder that our
manufacturing sector is a withering appendage of Wall Street, while German
manufacturing leads the global economy.
So why does the media
consistently use automation/technology to explain the loss of well-paying
manufacturing jobs?
To be fair, Poppy is not
alone. Virtually every elite broadcaster, journalist, pundit and columnist
claims that the loss of good-paying, blue-collar jobs is somehow connected to
new technologies. How can they ignore the fact that in Germany advanced
technologies and good-paying jobs go hand in hand?
Part of the answer is that it
is reassuring for elites to believe that job loss stems from complex “forces of
production” that are far removed from human control. The inevitability of broad
economic trends makes a pundit sound more sophisticated than the unschooled
factory worker who thinks the company is moving to Mexico just because labor
costs one-tenth as much.
Technological inevitability
also fits neatly into the idea that runaway inequality in our economy is akin
to an act of God, that globalization and technology move forward and no one can
stop the process from anointing winners and losers. The winners—the richest of
the rich—are those who have the skills needed to succeed in the international
technological race. The losers—most of the rest of us without the new
skills—see our jobs vaporized by technology and automation.
Too bad. Nothing to be done
about it. Stop whining. Move on.
In other words, rising
inequality can’t be fundamentally altered.
Sinclair’s Law of Human Nature
Or maybe there’s another
explanation suggested by Upton Sinclair’s famous adage: “It is difficult to get
a man to understand something, when his salary depends on his not understanding
it.”
The newscasters, the pundits,
the top columnists and recidivist TV commentators—nearly all of them are doing
very well. They may not be billionaires, but they live in a rarefied world far
removed form the worries felt by Mr. Feltner and his brothers and sisters at
Rexnord. From their elite vantage point, the status quo may have problems, but it
is treating them remarkably well. So quite naturally they are drawn to
narratives that justify their elite positions; that altering runaway inequality
and its privileges would be futile at best and even harmful to society as a
whole. How convenient.
Then again, American media
firms are no strangers to stock buybacks. Time Warner, which owns CNN, Poppy’s
employer, instituted a $5 billion stock buyback in 2016. That’s $5 billion
that, for example, didn’t go to news investigations about the perils of stock buybacks.
We don’t know if Poppy Harlow receives stock incentives, but her top bosses
certainly do.
What about NBC/MSNBC? Comcast
is the parent company which also instituted a $5 billion stock buyback in 2016.
Brother Feltner is right.
Corporations are moving offshore to cut their wage bills. But they are not
using that money to reinvest in their companies to improve the product and
train the workforce. Instead, they are offshoring to gain cash flow to finance
their fix. They want more stock buybacks which in turn enrich top executives
and Wall Street investors. Automation and technology have nothing to do with
this perilous addiction.
So, I’ll stop yelling at
Poppy, once she starts covering stock buybacks.
