After destroying the US middle class, how will US corporations survive?

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After destroying the US middle class, how will US corporations survive?

Here is an issue I have been struggling to understand and I would appreciate anyone’s views.

I increasingly see the US as a corporatocracy.  To lower costs, and vastly boost profits, manufacturing jobs were shipped to China.  Service jobs are also being outsourced overseas.  US workers are now competing on a global basis  with people in emerging countries, who have an increasing level of skills.  They will gladly work for much less than a US worker can survive on, as even the bare necessities cost much more here.  The steady destruction of the American middle class is clearly evident and destined to grow worse.  Yet personal consumption by US citizens accounts for about 70% of US gross domestic product.  The corporations are destroying the American people who comprise the primary market for what they sell.

US corporations have to be aware of this.  They must think they have some way to deal with this loss of market.  Here are my tentative conclusions.

As US based corporations destroy US consumers they expect foreign markets to pick up the slack, especially countries like China, Brazil, and India.  My projection of this trend is – The decline of the US middle class will accelerate and the shrinkage in size will be severe.

Though US corporations no longer make things in the US to export, that doesn’t matter to them because they set up the factories in China to make them for export all over the world, and retain even bigger profits.  My projection of this trend is – The ownership and knowledge to run these factories will increasingly move to Chinese hands and eventually they will cut out the US corporations and peddle the goods directly, leaving the US corporations high and dry.

The mega-corporations are not US companies, or international companies, or multi-national companies; they are truly stateless global entities with loyalty to no one.  Many have more resources than a small nation, with much better management.  They exits only to continually increase profits by any means necessary.  Destroying a nation, even the US, is irrelevant to them in the pursuit of profit.  But their own existence is paramount and they must have a plan for how they will survive.

I have not studied corporatocracy, and I don’t approach this from a political angle.  But my analysis of economics has led me to these tentative thoughts.  I would like to hear from anyone who has thought about or studied this issue, or just wants to comment.

Do the analysis and conclusions seem sound?  What am I missing here?  I would appreciate your thoughts.

Travlin 

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Re: After destroying the US middle class, how will US ...

Well I'm certainly no expert in this but for what its worth here is my opinion.

The US was perfectly happy with capitalism after world war II because we were on the top of the economic food chain. We had the factories, the capital, the people and the skills. But as capitalism went more global corporations became global entities. As global entities being loyal to any one nation doesn't make sense the focus is all about becoming larger, making more money and putting competitors out of business. So a main component of capitalism is really about attrition.

Its only natural that if this is your thinking then you go globally to the cheapest labor sources, which usually happen to be the poorest countries, then sell to more prosperous countries at a profit. But here in the 'problem' once one company makes this move to cheap labor their competitors are forced to do the same or go out of business. At this point it should be clear that capitalism has no allegiance to any country. I'm not saying this is good or bad. I'm just making the observation.

So now we have what you have stated here:

The mega-corporations are not US companies, or international companies, or multi-national companies; they are truly stateless global entities with loyalty to no one.  Many have more resources than a small nation, with much better management.  They exits only to continually increase profits by any means necessary.  Destroying a nation, even the US, is irrelevant to them in the pursuit of profit.  But their own existence is paramount and they must have a plan for how they will survive.

You're not missing anything. You're observations are correct. IMO what happens now is pretty simple. Corporations now run the world. They will cycle through cheap labor sources throughout the world moving from one to the other. As those countries economies expand and labor become more expensive then they move to the next one. Government don't matter any longer which means the will of the people don't matter any longer. All that matters is that global companies become largers and try to beat each other out which means in the end only a handful of mega corporations control the world economy and thus the worlds governments.

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Re: After destroying the US middle class, how will US ...
Travlin wrote:

 The steady destruction of the American middle class is clearly evident and destined to grow worse.  Yet personal consumption by US citizens accounts for about 70% of US gross domestic product.  The corporations are destroying the American people who comprise the primary market for what they sell.

I think your question may be answered with this thread:

http://www.peakprosperity.com/forum/blackstone-makes-big-move-chinese-ho...

China now has the factories and industry that we had at the turn of the last century. Their population may be working for low wages compared to us, but they are *working,* and I'm guessing their middle class is growing just like ours did.

always follow the money ... they may be telling *us* that things are looking up, but their actions speak otherwise.

~s

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Re: After destroying the US middle class, how will US ...

 

Corporations will survive to a degree, but overall this system of CRAP has to go.  Take JP Morgan for example, just click below.

 

http://theeconomiccollapseblog.com/archives/the-more-americans-that-go-o...

 

Outsourcing is not the major destructor of job loss.  Downsizing through automation is the major contributor to this phenomena.  It will only continue, I think for the better, but our current mind set coupled with our messed up culture and value system is what will hold us back.  

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Re: After destroying the US middle class, how will US ...
Johnny Oxygen wrote:

But here in the 'problem' once one company makes this move to cheap labor their competitors are forced to do the same or go out of business.

...

Government don't matter any longer which means the will of the people don't matter any longer. All that matters is that global companies become larger and try to beat each other out which means in the end only a handful of mega corporations control the world economy and thus the worlds governments.

I really don't think this is true.  Yes, labor costs are a large portion of a companies products, but there are many other factors.  Transportation costs while small are still significant, quality issues, language barriers, cultural barriers, governmental barriers are all big issues as well.   I think if you truly want to understand why we keep ending up with so many large companies and movement of companies to certain parts of the world you have to look at governmental interference as the key motivator. 

This interference tends to favor the larger businesses and those that have the ability to overcome the high costs involved in globalizing.   For example, look at a small manufacturer.  They are at a cost disadvantage to a larger player just because of economies of scale, but can often complete with a niche product or better quality or service.  However as regulatory burdens (government sponsored unionization, environmental, OSHA, ...) grow the smaller business can not survive and either goes out of business or sales to the larger corporation who has the resources to either comply with the increased regulatory burden or they flee the burden by moving operations to coutries where the burdens don't exists.  So many people point to the labor as the reason for globalization but I believe it is much more often the regulatory differences  (real or via bribery) that are the root cause for the globalization we see today.

Even Chris in one of his latest articles opined on the issue.  Peter Schiff regularly brings up the subject as he keeps getting hit with new burdens that make it very hard on the smaller brokerage firms.  Just look at how often new legislation is sponsored/supported by the big players in a market.   Do you think they would naturally want more legislation?  It's seen by the big players as a way to squeeze out the smaller players.

Some articles:

Small Business, Big Regulatory Burden

The Tale of Two Washingtons

Consider that nearly a dozen Standard & Poor's 500 companies based in the United States were in the process of or had recently completed the relocation of their headquarters overseas as Mr. Locke was being sworn in by the Obama administration. Corporate executives cited excessive tax, labor and regulatory burdens as the primary reasons for leaving America.

 

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Re: After destroying the US middle class, how will US ...


Travelin wrote:

The corporations are destroying the American people who comprise the primary market for what they sell.

...

US corporations have to be aware of this.  They must think they have some way to deal with this loss of market.

I think this kind of represents an easy to fall into thought process that results in all kinds of bad conclusions .  We have to understand that the world economy is large, complex, and distributed. There is no "the corporations" entity that runs the world.  It's thousands and thousands of  businesses competing independently.  It's just like there is no "the people" entity representing all the people of the world excluding the corporations.  However, if you look at the statements you made you have a very "us versus them" thing going on.  You imply a concerted effort rather than each component doing what is right for it's own survival at the moment.

Instead you have to ask, why do we see such out of balance situations.  Most large, complex, and distributed systems will generally reach a sort of equilibrium (at least on longer time scales).  Generally I find the problems we see are the result of someone trying to "control" the system, when they are very likely to cause many unintended consequences from the attempt.

If you haven't read "The Black Swan", you really should.  It definitely gives a new perspective on complex systems.

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Re: After destroying the US middle class, how will US ...

Many made it to the middle class based on borrowed money. Many of the corporate profits were based on borrowed money too. It is slowing - not because there is less available credit, or less available perceived capital - but less available resources.  While some may view this as a dire circumstance, it is, in fact, a natural course of action. 

When the economy was providing close to full employment, at the same time, our natural environment was under full assault.

 

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Re: After destroying the US middle class, how will US ...

 

Travlin,

     I'm glad you have seen the light. The U.S. is a corporatocracy. John Perkins coined the phrase "corporatocracy" in his book Confessions of an Economic Hit Man.

The economic hitmen, global elite, or whatever you'd like to call them, have now turned on Americans in a more aggressive fashion:

"What goes around, comes around. We in the United States accepted this for a long time. We accepted that these economic hitmen would go to other countries, be able to exploit their resources, bring us really cheap tennis shoes and t-shirts that are made in slave sweat shops, bring us cheap petroleum that comes from destroying rain forests... we accepted this. We turned a blind eye to it. And now it's come home to roost. The same techniques that have been used in the Third World in building this empire overseas are now being used against the American people."

Predatory Capitalism. How does it feel?


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Re: After destroying the US middle class, how will US ...
rhare wrote:

 

I really don't think this is true.  Yes, labor costs are a large portion of a companies products, but there are many other factors.  Transportation costs while small are still significant, quality issues, language barriers, cultural barriers, governmental barriers are all big issues as well.   I think if you truly want to understand why we keep ending up with so many large companies and movement of companies to certain parts of the world you have to look at governmental interference as the key motivator. 

At the risk of generalization, labor is the biggest proportion of the cost of goods for most commodity items. And in the service sector it is close to 100% of the embedded costs. Globalisation is all about corporations seeking out the lowest labor burden, end of story. To dismiss this and rope in “other factors” by way of a root cause explanation, such as  government regulation, environmental concerns, et. al. is just propaganda straight out the Rush Limbaugh playbook. These tertiary considerations, although real, are most certainly not the dominant reason for globalisation.

It is true however, that regulatory mandates are more easily absorbed by large corporations than small businesses, and in early stage capitalism you can observe the counter-intuitive effect of large companies actually advocating additional regulation, as they know it will disproportionally effect their small business competition.

However, this phenomena disappears in late stage fully developed capitalism where large corporations have no real competitive fear of small business, they are now far more pre-occupied with reducing labor costs as their employee head counts soar, dramatically multiplying the affect of fully burdened labor cost on profitability. While small business can compete in niche markets on aspects of quality, brand identity, and other social nuances, the large scale footprint in terms of total commerce is coming from the big multi-nationals, especially as the effective demand of the US middle class is declining, along with average wage earner (household) income. This places the commodity purchase profile squarely in the domain of low price as being the dominant consumer consideration, a factor that small local businesses cannot hope to compete against.

In the area of non-commodity goods and discretionary spending, small business can do little better, where as in commodity goods small businesses that are not globalised stand near zero chances of competing, there is at least some opportunity to serve a niche market. In this area, coercive forces once again rear their ugly heads, companies large and small have discovered that the wages of stateside employees are profoundly affected by the cost of worker substinence, e.g. real estate prices and cost of living. Business do their level best to push down these costs, supporting and advocating any initiatives that reduce the workers cost of living, as they know full well that this savings can be exploited to the corporations benefit in the form of across the board reduced compensation.

It is this fashion that a partially insidious dependency of capitalism manifests, and we can use the much maligned Wal Mart as an excellent example. Approximately 1/5th of all Americans shops at Wal Mart and it’s not because of the stellar store ambience. It’s because they have the lowest prices and it’s the only place where much of the population can afford to buy the commodity items needed for substinence.

It’s notable that Wal Mart sources much of their product from the Chinese supply chain.

This ubiquitous availability of cheap substinence goods has the effect of depressing US worker wages in other unrelated industries, as the workers cost of living decreases so do the wages paid as compensation. To illustrate, interchange real estate instead of grocery pricing. The wages employers must pay workers are deeply effected by local real estate prices. Expensive housing means expensive wages, as every worker must live somewhere. For this reason, businesses seek out communities with low real estate costs, because they know they can decrease wages as the workers have lower rents.

It is no accident that Wal Mart is the largest corporation in the world, this company and their business model of monopsony play a pivotal role in the ability of US corporations to depress stateside worker wages. Coupled with widespread off shoring of jobs to China, this combination aims for a particularly damaging marriage of political economy.

Using environmental and regulatory excuses to explain globalisation is dangerous and misleading premise. They are factors, but not dominant ones.

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Re: After destroying the US middle class, how will US ...

"Wage Arbitrage" has been going on since, well, since forever. Rome fell because of an energy crisis - they ran out of slaves. I think many hunter gatherers captured slaves as well so it isn't just we "advanced" societies. The American Colonies were an old world labor off-shoring endeavor. But New England eventually lost out it's textile mills to the Southern US who in their turn lost out to Asia.

So, it's not a new thing, and really, is Global Mega Corp any less loyal to America and Americans than the textile mills in the south were anti-American because the killed the industry in the north? Are they worse than the meat packers in Chicago in the bad old days or any number of other companies who used workers up and tossed them away? After all, who owns those modern corporations? Isn't it the Cal-Pers mutual funds and millions of baby-boomers all clamoring for an extra 100th of a percent of return so they can show the world how powerful they are??

So, one group using their strength and power to get the upper hand and become even stronger and more powerful is nothing new. But one thing that is new today might be the powerful no longer need to force us into slavery, we volunteer.

And why do we do that? Because we want to be more powerful too! We show how powerful we are by acquiring as many artifacts of power as possible. We display our new flat screen TV like a scalp! And if the corps make TVs cheap enough we can also brandish an iPod too - making us doubly powerful!

Anticompetitive tactics usually work in the short run I'd guess, between walmart and cheap fuel, inefficient little retailers and many locally owned business have been eliminated to the glee of shoppers everywhere - except the ones that work at walmart, the same with Netflix who have finished off that last bastion of Mom and Pop business (the video store) and will soon eliminate their main cost of doing business - the DVD and I'd guess the labor to ship em.

What was the question? Oh yea, when things actually become painful and the divide obvious and the corps 'human rights' begin to sink in, only then the proletariate will rise up and cut off some corporate heads (metaphorically speaking of course) - but we are a long way from there yet. Most people still vote for tax cuts for the rich because they think they can be rich some day, just gotta buy enough lottery tickets... 

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Re: After destroying the US middle class, how will US ...

I'm old enough to remember the 50's when the social commentators told us that in the future much of labour would be performed by robots and we would therefore be able to lead a more luxurious life spending less time working and have more time for leisure and pursuit of the arts.

So what went wrong?

IMHO I don't believe that the problem lies in globalization per se, but in the way that it has been developed. The improvement of living standards throughout the world is an admirable social goal and tends to have the salubrious effect of reducing the rate of population growth. So what did go wrong? Looking back at the 50's all major Western nations had a highly progressive taxation system that imposed very high tax rates on wealthy individuals and corporations. Whether this was good of not it had the effect of keeping the Gini coefficient for wealth quite low. This has been attacked over the years as rampant socialism, especially in the US, and the taxation system has been dramically reduced to its current level with the concomitant increase in the Gini coefficient. I should note that many of these changes were promoted by corporations in their own self interest to the point that they have now become so big as to have captured governments and direct their policy. I understand that in some ways corporations can't help themselves since they are mandated by law to maximize their bottom line, at the risk of shareholder suits, but this gives rise to short sighted thinking. This is capitalism, as it exists today, in its final stages of moving to global dominance.

Just this past week the WEC (World Economic Forum, meeting in Davos) released a paper calling for an additional $100 trillion of credit (DEBT) to be produced over the next decade. This would basically double the level of global credit (DEBT). As CC followers know we need more debt like a hole in the head. How will this be achieved? As the $US is near its death bed it would appear that the plan might be to initiate a new, possible global, currency (which might be either the sole or the reserve currency). We can expect the Gini coefficient to increase toward the ultimate value of 1, while the vast majority of the world's population (not merely those ejected from the US middle class) will live in perpetual debt slavery.

Is this inevitable? Well the future is never fixed but grows out of the trends of the present. This is only one scenario. Another is the complete devastion and social collapse that is the subject of several threads here. Another is total nuclear armageddon. A brighter future for all humanity would involve the wealthy losing the current class war and the establishment of an egalitarian society. Such change is deeply resented in the US where social principles and values are decried due to the propaganda directed against equality, notwithstanding the preamble to the US Constitution. As an example look at how the Georgia Guidestones have been denigrated when there is much to commend these principles and an informed, enlightened discussion as to whether these are desirable and achievable goals in needed. 

 

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Re: After destroying the US middle class, how will US ...
Johnny Oxygen wrote:

Well I'm certainly no expert in this but for what its worth here is my opinion.

The US was perfectly happy with capitalism after world war II because we were on the top of the economic food chain. We had the factories, the capital, the people and the skills.

You left out "we had the oil".......

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Re: After destroying the US middle class, how will US ...

 

Maybe I am wrong, but I get the gist some of the posts to this thread believe the USofA can be fixed. I find that idea quite funny. Here, go through this 5 part video series by Dr Joseph Tainter, it should give you a different perspective:

In the context of cost and return, what is, the definition, of "net"?

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Re: After destroying the US middle class, how will US ...

Thanks everyone for the many thoughtful replies.  We have a good discussion going.  I was out today so I need to dig into the provided information before I can say much.  One post I can comment on now.

Rhare wrote:

I think this kind of represents an easy to fall into thought process that results in all kinds of bad conclusions .  We have to understand that the world economy is large, complex, and distributed.  <snip>  However, if you look at the statements you made you have a very "us versus them" thing going on.  You imply a concerted effort rather than each component doing what is right for it's own survival at the moment.

Rhare, you made an important  point.  I was aware of that, but to keep the post at a reasonable length I had to make things simple and short.  I’ll elaborate here to prevent misunderstanding. 

I don’t see a wicked cabal plotting in a secrete room to destroy America.  I see the usual process of history were multiple interests compete for influence, and some join forces when interests coincide, “ .. doing what is right for it's own survival at the moment.”  However, it seems increasingly clear to me that the current effect is that the American middle class is being destroyed as large corporations respond to the competitive demands of global economics.  And the middle class needs to be, “ .. doing what is right for it's own survival at the moment.”

When US corporations feel compelled to “kill the goose that laid the golden egg” of the US market, they must have their own strategy for survival.  I want to know were I fit into that, and what my strategy should be.

Thanks for your thoughts.

Travlin

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treason

Although this is a repost of a Zero Hedge article from the Daily Digest, I think it embodies exactly the type of corporate and government mindset and action which is destroying our country:

"Speaking of people who are willing to sell their country out for a Dollar – GE had excellent earnings and I got my daily "WHUCK?!?" moment this morning when Obama named Jeff Immelt the head of his Economic Advisor Panel, replacing Paul Volker who quit when he realized this country is totally being controlled by Souless Corporate Interests who are embodied by none other than – Jeff Immelt.  

Yes, it’s the same Jeff Immelt who just signed a deal to transfer America’s Avionics Technology to China’s State-owned Commercial Aircraft Corp. of China who (and I mean who, not Hu, althogh it’s easy to see how this is confusing) intends to go into direct competition with Boeing, who is not only a top US military supplier but our nation’s largest manufacturing exporter BY A MILE – so much so that Durable Goods have to be measured ex-Aircraft to smooth out their shipping cycle.  

General Electric Co.’s CEO Jeffrey ImmeltBoeing sells $68Bn worth of airplanes per year and has over $300Bn worth of orders for the 787 backlogged.  The company directly employs 157,000 employees, mainly in the USA and, as they build their planes here and tend to use American parts, they in turn employ roughly 1M more people, accounting for close to 10% of our nation’s total manufacturing employees.  As I mentioned when the deal first broke – the technology GE is turning over to China represents 100 years worth of advances in American avionics and, just because GE legally got their hands on the patent rights over the years – does not give them the right to put a bow around them and hand them to Hu (not "who," this time I literally mean Hu).  

 

 

For the rest of the article ...

http://www.zerohedge.com/article/alpha-2-says-%E2%80%9Ccliff-ahead%E2%80%9D

So he's fired huge numbers of employers, lost tremendous value for his shareholders, took taxpayers' money for bail-outs, and committed an act that, in past times, would be construed as treason ... and Obama rewards him by appointing him to this post!?!?!?

Does anyone else get outraged about this because I sure am!!! 

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Re: After destroying the US middle class, how will US ...
Travilin wrote:

When US corporations feel compelled to “kill the goose that laid the golden egg” of the US market

Compelled is a good word. Unlike the Marxists around here Wink, I don't feel that most of the corporations prefer to send jobs oversees, but rather they have to because labor and other costs can't be brought in line with whats required to be competitive due to direct government interference in the market place.  Taxes, pensions, government sponsored unions, health care, regulation, all those things that government has meddled with are facets in creating the scenario we have today.  The primary factor being the distortion of the cost of money by the Federal Reserve. 

Travilin wrote:

I want to know were I fit into that, and what my strategy should be.

You fit in by trying to be competitive with those vying for your job.  If the government is making your skill or job be shipped overseas due to a non-competitive environment, then you need to work to change the government.   However, we have no evidence that this realization is taking place, rather we still keep hearing about how the government is going to create jobs.  They can't, all they can do is spend until they can spend no more. 

Strategy - have skills that will be valuable when the collapse occurs and we all have to start living locally again. That doesn't necessary mean handyman skills (woodworking, farming, etc), but skilled labor will be required as well.  When we can not longer afford to farm our work abroad then jobs will begin to appear.  Of course if the government continues to try and maintain the same bueraucratic control, then things will get much much worse after a collapse until a revolt/revolution occurs.  Service sector (non-skilled and luxury) as well as government are probably the least marketable post currency crisis.  Of course, if we manage to kick the can down the road some more, then government bureaucrat might be valid for a bit longer.  I just wouldn't count on it....

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Re: After destroying the US middle class, how will US ...
rhare wrote:

Strategy - have skills that will be valuable when the collapse occurs and we all have to start living locally again. That doesn't necessary mean handyman skills (woodworking, farming, etc), but skilled labor will be required as well.  When we can not longer afford to farm our work abroad then jobs will begin to appear.  Of course if the government continues to try and maintain the same bueraucratic control, then things will get much much worse after a collapse until a revolt/revolution occurs.  Service sector (non-skilled and luxury) as well as government are probably the least marketable post currency crisis.  Of course, if we manage to kick the can down the road some more, then government bureaucrat might be valid for a bit longer.  I just wouldn't count on it....

Nice.

I suspect the collapse will be so thorough there will be nothing government has to revolt against. Possible?

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Re: After destroying the US middle class, how will US ...

According to USA Today, the average hourly wage for a Chinese worker is $1.84/hr. If we use the Pliketty and Saez average wage earners’ data from the 90th percentile segment of the US wage earning population, we see an average of $14.90/hr for the US worker.

Very nearly an order of magnitude difference.

Now, let’s look at the fully burdened cost to carry a US worker. A burden rate is the actual hourly rate that it COSTS an employer to carry a worker, which includes his or her salary, vacation and sick pay, health insurance (if applicable) as well as externalized costs like unemployment insurance, workman’s comp insurance and payroll taxes. The difference between the fully burdened labor cost and the employees’ gross pay is a fair approximation of the total regulatory and governmental direct costs. I just pulled the labor cost records for my company (non-union), and our fully burdened costs are on average, 32% over the employees gross pay. If I back out the internalized employee costs (vacation, sick, and holiday pay) and solve just for externalized governmental regulatory costs, I get 26% directly attributable to regulatory overhang. So 26% of the employees’ gross pay is added to the bill which is the governmental required contribution to my burden rate.

So let’s have a look a the numbers in a comparative sense:

-         For the average American wage earner in the 90th percentile category, the wage rate is $14.90 (as before) and 18.78/hr after the regulatory burden is added, or about $3.87/hr extra.

-         And the Chinese worker is still 1.84/hr. Not sure how much regulatory burden there is in a totalitarian Communist state, guessing not much.

So if the government eliminated all of the direct labor burden costs from the employers’ payroll, we’d save $3.87/hr for each average worker, but the American worker is still more than 800% more expensive than the Chinese worker!(Assuming all of the regulatory savings are deducted from the total burden cost) These numbers will vary by industry and by specifics, but by and large, the proportions are pretty much standard, and provide clear and logical explanation why large companies offshore jobs as fast as they can. The larger the employee head count, the more lucrative the savings. Good luck making yourself more competitive against this cost model.

This is all part of the repetitive and evergreen refrain from the corporatists, complaining that environmental regulations, taxes, and various and sundry bogey man are all conspiring to make running a business impossible, and naturally, anyone that might suggest such complaints are farcical, and cannot be backed up by real numbers is naturally a Communist and un-patriotic. They use labels like “job killers” , “environmental whackos” and other pejoratives to describe their outrage that they can’t just pour caustic chemicals down the sewer, that workplace safety (hey that costs money) is required to provide some modicum of worker protection, and dammit, they are forced to pay for this stuff and taxes to boot. Its just un-American. So, you know, we’ll just take our jobs offshore, where we CAN just pour stuff down the sewer, until those folks stop persecuting us. And those labor camps in China, hey, not my problem. But it’s not the money. No, really it’s not, it’s the principle!

Take a gander at the massive profits being posted by the large multi-nationals that participate in these large scale offshore schemes, and make your own call as to which side of this specious argument you want to be on.

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Re: After destroying the US middle class, how will US ...
darbikrash wrote:

For the average American wage earner in the 90th percentile category, the wage rate is $14.90 (as before) and 18.78/hr after the regulatory burden is added, or about $3.87/hr extra.

Only one problem, you have only included direct labor costs attributed to payroll taxes and benefits (unemployment,healthcare, etc) and excluded the far bigger problem of other regulatory compliance. According to the SBA this runs about $10,585/employee/year in 2008 for businesses with fewer than 20 employees, versus only $7,755 for firms of larger than 500 employees. And in the last few years that costs has undoubtedly gone up due to the massively complex recently passed legislation..

So for small employers, at 2000/hrs/yr that's an additional $5.29/hr over what you show for regulatory compliance.

So what do you get?  Smaller employers going out of business or selling to larger employers, and larger employers that can, moving their positions abroad to avoid the costs. 

But there are many other problems with your analysis.  For instance you took a direct comparison with a US$ exchange without accounting for the vast difference in purchasing power of the employee within China (see PPP valuations).  You really have to multiple the value of that dollar by about 4.  So, what does this mean?  It means the value of the pay in China is really about 4x the direct exchange rate.  That $1.84 is really the equivalent of $7.36 in equal purchasing power.  So still low, but not near the "sweatshop" rate you make it out to be.  Why does it buy so much more in China, because all those businesses that don't have the same regulatory burden also don't pass it on to their consumers.

darbikrash wrote:

This is all part of the repetitive and evergreen refrain from the corporatists, complaining that environmental regulations, taxes, and various and sundry bogey man are all conspiring to make running a business impossible, and naturally, anyone that might suggest such complaints are farcical, and cannot be backed up by real numbers is naturally a Communist and un-patriotic. They use labels like “job killers” , “environmental whackos” and other pejoratives to describe their outrage that they can’t just pour caustic chemicals down the sewer, that workplace safety (hey that costs money) is required to provide some modicum of worker protection, and dammit, they are forced to pay for this stuff and taxes to boot. Its just un-American. So, you know, we’ll just take our jobs offshore, where we CAN just pour stuff down the sewer, until those folks stop persecuting us. And those labor camps in China, hey, not my problem. But it’s not the money. No, really it’s not, it’s the principle!

Ah, the usual Marxist/statist rantings. Evil businesses, let the government protect us, care for us, save us from ourselves... Honest, we know what's good for you.. Blah blah blah....  I can see how well it's worked so far. Surprised I see you still have no clue that all this meddling with a large complex system like the economy by government results in all kinds of unintended consequences.  All those good intentions that try to protect us from the 1% of evil and generate far worse problems.

 

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darbikrash
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Re: After destroying the US middle class, how will US ...

 Well I see I am back from the land of the vanquished. That didn’t last long. Smile

Regarding your response, I am afraid (as you might guess) that I have to raise an objection or two. Nice try though.

I did note specifically in my post that I consider direct costs only, namely because indirect costs are way too abstract to be useful for this comparison. For example, the aggregated regulatory costs the report you reference cites is a veritable dumping ground for the operations budget of much of the US government. This includes the Homeland Security budget, the cost to generate electricity, and other fixed costs taken to run an entire country and broken down to simulate a direct burden on a business. I consider this to be an entirely unrealistic dataset for the purposes of comparing Chinese labor costs with direct US labor costs. These costs (some 1+ trillion) are reduced to taxation inputs, which are present whether the company offshores or not, so we cannot use this metric as a contribution to the decision matrix of the total costs of employment.

Yes, all business would like lower taxes, even mine. You could just as easily argue the total decremented loss to the tax base when jobs are sent offshore and no doubt prepare a elegant report showing a net loss as compared to the regulatory accounting

I’m afraid I cannot accept the use of such data for a meaningful comparison of offshore labor burdens, compliance with the Federal and State tax codes differ quite significantly in actuality from the effective rates due to deductions – as you well know.

 From the report you linked:

The report uses various methods to determine how the costs of regulations are

distributed: between businesses and individuals, among sectors of the U.S. economy,

and among businesses of different sizes. These tend to reflect the initial or statutory

burden of the regulations, that is, based on who bears the initial compliance costs. It

needs to be acknowledged that this initial compliance burden can be shifted, and the

final incidence of regulations may differ from this initial or statutory assignment of the

regulatory costs. The difference between the initial incidence and how costs are

ultimately divided depends on the demand and supply elasticities in the respective

product and input markets. The final incidence of the federal regulatory burden is likely

to differ from the initial incidence of costs. Of course, this is exactly analogous to the

distinction between how a government collects a tax versus who ultimately pays for the

tax. Collecting 100 percent of gasoline taxes from the service station owner does not

necessarily mean that the owner bears the full burden of the gas tax. Rather, the gas tax

is passed on to consumers to the extent they are willing to pay a higher price at the

pump.

 

And…

 

Before costs can be allocated across these five business sectors, a more general

cost allocation is necessary, specifically how much of the regulatory burden falls in the

aggregate on businesses. This task requires a delineation of the regulatory burden that

falls initially on business from the burden that falls initially on individuals and state and

local governments. As discussed in Section II, the report does not attempt to map out

the subsequent shifting of this burden from businesses to individuals (e.g., in the form of

higher retail prices) or from one business sector to another (e.g., in the form of higher

energy prices or health insurance premiums). It is worth emphasizing that all regulatory

costs are ¾ and can only be ¾ borne by individuals, as consumers, as workers, as

stockholders, as owners, or as taxpayers. In other words, the distinction between

“business” and “individual” is one that focuses on the compliance responsibility, fully

recognizing that ultimately all costs must fall on individuals. Moreover, the degree to

which businesses are able to shift compliance costs forward onto consumers can only

be determined with highly specific information about the market elasticities. For example,

without the price elasticity of demand, we cannot determine with any level of certainty 

what percentage of the regulatory cost will be shifted forward beyond the statutory

incidence.

The direct labor costs are the only meaningful way to draw this comparison, unless you are trying to use data to fit an agenda.

But there are many other problems with your analysis.  For instance you took a direct comparison with a US$ exchange without accounting for the vast difference in purchasing power of the employee within China (see PPP valuations).  You really have to multiple the value of that dollar by about 4.  So, what does this mean?  It means the value of the pay in China is really about 4x the direct exchange rate.  That $1.84 is really the equivalent of $7.36 in equal purchasing power.  So still low, but not near the "sweatshop" rate you make it out to be.  Why does it buy so much more in China, because all those businesses that don't have the same regulatory burden also don't pass it on to their consumers.

I’m really trying to get my head around this catastrophe, you are conflating cost of living comparisons with cost of goods? The $1.84 is what the US corporation pays for an hour of labor, what this buys the Chinese recipient is of no concern to this discussion.

 

Ah, the usual Marxist/statist ratings. Evil businesses, let the government protect us, care for us, save us from ourselves... Honest, we know what's good for you.. Blah blah blah....  I can see how well it's worked so far. I see you still have no clue that all this meddling with a large complex system like the economy by government results in all kinds of unintended consequences.  All those good intentions that try to protect us from the 1% of evil and generate far worse problems.

 

This may surprise you, but I am not particularly enamored of the way our government is handling these issues, regulatory or otherwise. I think the fiscal policies are irresponsible and I do not advocate a position that government knows best, especially a government captured by corporatist interests.

However, the notion that this “large, complex system” is better left to natural market forces to resolve the structural abominations of capitalism is an even worse idea. I’d guess I’d feel a little more inclined to take this discussion more seriously if there was even a tacit acknowledgement that maybe, just maybe, that there a few (OK maybe a lot) of things that free markets cannot provide for. But this reflexive blame game that regulation is the cause of all that ails us is just more monochromatic prattle that it is all the “gubmint”.

 

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xraymike79
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Re: After destroying the US middle class, how will US ...
darbikrash wrote:

 This may surprise you, but I am not particularly enamored of the way our government is handling these issues, regulatory or otherwise. I think the fiscal policies are irresponsible and I do not advocate a position that government knows best, especially a government captured by corporatist interests.

However, the notion that this “large, complex system” is better left to natural market forces to resolve the structural abominations of capitalism is an even worse idea. I’d guess I’d feel a little more inclined to take this discussion more seriously if there was even a tacit acknowledgement that maybe, just maybe, that there a few (OK maybe a lot) of things that free markets cannot provide for. But this reflexive blame game that regulation is the cause of all that ails us is just more monochromatic prattle that it is all the “gubmint”.

and

darbikrash wrote:

Take a gander at the massive profits being posted by the large multi-nationals that participate in these large scale offshore schemes, and make your own call as to which side of this specious argument you want to be on.

++!,000,000,000,000 great points.

The title of the post and certain views expressed smack of someone suffering from Stockholm syndrome. The very entities, mega corporations, leading the charge for the destruction of an ecosystem able to sustain human habitation and any semblance of a vital middle class are given top concern. They need us; we need them. It just goes to show how perverse and a**backwards the situation is. It's simply given as the natural order of things. 

 

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Carl Veritas
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Posts: 294
Re: After destroying the US middle class, how will US ...

"After destroying the middle class, how will US corporations survive"?

They will survive or perish the same way big and small business survive ------ Sales to their true master ---- the customer.  

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xraymike79
Status: Diamond Member (Offline)
Joined: Aug 24 2008
Posts: 2040
Re: After destroying the US middle class, how will US ...
Carl Veritas wrote:

"After destroying the middle class, how will US corporations survive"?

They will survive or perish the same way big and small business survive ------ Sales to their true master ---- the customer.  

Yes, resistance is futile...we must submit

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xraymike79
Status: Diamond Member (Offline)
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Posts: 2040
Re: After destroying the US middle class, how will US ...

Off topic here, but this video illustrates how much of a "Borg" Palin is:

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Travlin
Status: Diamond Member (Offline)
Joined: Apr 15 2010
Posts: 1322
Re: After destroying the US middle class, how will US ...

Thanks again everyone for the replies.  They were all good.  I can’t comment on all of them but here are some things that struck me.

 

Johnny Oxygen wrote:

Corporations now run the world. They will cycle through cheap labor sources throughout the world moving from one to the other. As those countries economies expand and labor become more expensive then they move to the next one. Government don't matter any longer which means the will of the people don't matter any longer. All that matters is that global companies become larger and try to beat each other out which means in the end only a handful of mega corporations control the world economy and thus the worlds governments.

That does seem to be where we are headed Johnny.

xraymike79 wrote:

John Perkins coined the phrase "corporatocracy" in his book Confessions of an Economic Hit Man.

The link and videos were very interesting Xray.  As an insider, Perkins’ story carries weight.  Interesting point you made later about Stockholm Syndrome.  Believe me it is not the corporations welfare I’m worried about, but ours.

Pops – I think you have a good handle on why Americans have been so passive about this.

SteveW wrote:

I'm old enough to remember the 50's when the social commentators told us that in the future much of labour would be performed by robots and we would therefore be able to lead a more luxurious life spending less time working and have more time for leisure and pursuit of the arts.

So what went wrong?

IMHO I don't believe that the problem lies in globalization per se, but in the way that it has been developed.  <snip>  I understand that in some ways corporations can't help themselves since they are mandated by law to maximize their bottom line, at the risk of shareholder suits, but this gives rise to short sighted thinking. This is capitalism, as it exists today, in its final stages of moving to global dominance.

I remember that vision too Steve.  Remember how we used to worry about mindless robots taking over the world?  Have the corporations become virtual robots?

Sevenmmm – Tainter has been on my reading list.  Thanks for the videos.

Rhare and Darbikrash – Interesting debate and well done.

Travlin 

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Travlin
Status: Diamond Member (Offline)
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Posts: 1322
Re: After destroying the US middle class, how will US ...

Further thoughts after reading your responses

I asked how US corporations would survive with the US domestic market severely declining due to job and wage destruction.

*   The system that allowed 5% of the world’s population to consume 25% of its resources is now devouring the country that practiced it most successfully.  As Xray put it -- Predatory Capitalism. How does it feel?

*   It is clearer to me now that the mega-corporations have allegiance to no nation, despite their country of origin.  They are not US corporations.

*   They may not even have a plan for survival, in a group sense, in the face of declining markets in the US, Japan, Europe, etc.  They may be so consumed by the blind imperative to “grow” and eliminate competitors, that they are largely ignoring the long term implications.  Or in their eyes survival may amount to being “the last man standing”.

*  I am still very skeptical of the idea that the markets of emerging nations will be able to make up for the decline of older markets.  I’m not skillful enough to find and analyze the data for this, and the data would be questionable, but if someone has information I’d like to see it.  I did read that GM sold more cars in China than the US last year, but not how that compared to their past US sales peak.

*   If emerging markets can’t pick up the slack in demand the mega-corporations will be employing even fewer people world-wide.  This will be another hit to the fragile global financial system and economy.

Your thoughts are welcome.

Travlin 

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nauthizjane
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Posts: 1
Is there an agenda to destroy the Middle Class

What happens when there is no middle class in America? We become a socialist state like Cuba and Venzuela,  dependent on what the elitist parasites of government give us from the revenue collected from our hard work. "From each according to his ability, to each according to his need" and the need of our elite overlords will increase with their greed and lust for power. That is what happens if we allow the powers that be to do this to us. That is what the  "We Know Best Crowd" and the Obama's of this world believe.  Regulations and taxes are made to burden our employers. They move overseas or they reduce employee benefits and hours to survive.  This increases our dependence on government welfare, whether it is subsidized healthcare,unemployment,EBT cards or food stamps. So, what do we do to stop this anti American agenda by the elite socialists in our nation?

First we remove the government revenue collection from Washington and we replace it with a consumption tax on all goods and services, including exports.  Everyone pays to support our government--all citizens, all immigrants, foreign students, visitors and foreign consumers. Consumer prices decrease and the tax is absorbed and not noticed. We also lower the business and corporate tax substantially and we do not tax investment monies that create jobs, build infrastructure, go towards research and innovation.   Next we reform and simplify our regulations and make them business friendly and consumer protecting. Our government uses compliance fees as a revenue collector. The big guys can pay, but the small businesses just go under.  Regulatory and Tax reforms create a fully employed and vibrant economy. A fully employed America solves a whole lot of problems.  We pay off that nation killing debt. America welcomes any immigrant who supports himself and obeys our laws.  We use our energy natural resources as a weapon to secure world peace by stopping the aggression of Russia, China, Middle Eastern Nations,Marxist South American nations and we defund the terrorists. We become the free world's energy supplier.  The world needs carbon energy, let it be American energy until we have a cheap and abundant substitute. We can also export scrubbers and clean energy technologies. Already, we have a way to extract energy from coal without burning it. There are ways to use our carbon energy without pollution. In short we decrease our Federal Government's footprint, increase State's rights and privatize everything  we can, excluding defense.  

 

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