Tuesday, May 10, 2011


If you want to know why the economy is still in trouble check out these two pieces on corporate crime and our 30 year-long "wage" recession from Harvard economist Jeffrey Sachs and former Labor Secretary Robert Reich.

First up, we have Sachs' "Corporate Crime Wave" piece.

In very simple terms Sachs makes it clear that corporate crime pays. And it especially pays if you earn a living as a top executive in one of the largest firms around the world. And why does corporate crime pay? Two reasons.

* Big companies are now multinational, while governments remain national. Big companies are so financially powerful that governments are afraid to take them on.

* Big companies are major funders of political campaigns in places like the U.S., while politicians themselves are often part owners, or at least the silent beneficiaries of corporate profits.

Sachs is spot on here. Conceptually, the challenge of managing multinationals is easy to understand. There's historical precedent. At the beginning of the 20th century corporate America had become so powerful that individual states were largely powerless to take on the Carnegies, Morgans, and Rockefellers of the world. It took market collapses, entrenched corruption, and genuine public outrage to motivate a political movement.

But it also took the genius of Teddy Roosevelt at the national level to challenge the "trusts" and monopoly practices of corporate America.

But even the efforts of Teddy Roosevelt weren't enough. A string of laissez-faire, let-the-market-do-what-it-wants, American presidents in the 1920s allowed corporate America to have it's way with the economy and the American public. We all know what happened with the triumph of conservative Republicanism in the 1920s ...

Sachs also discussess how problems are made worse by the international financial structure. In his view the international financial structure is propped up and supported by institutions that lack genuine oversight authority.

This has created an environment that allows tax havens, winks at secretive Swiss banks, encourages global tax evasion, accepts global kickbacks, nods at illegal payments, turns it's back on bribes, and pretty much ignores other illegal transactions - as long as it's done by and for large multinationals (drug lords, money launderers, and weapon runners really need to work on getting their trade legalized).

According to Sachs, the "wealth, power, and illegality enabled by this 'hidden' system are now so vast as to threaten the global economy's legitimacy." (Sachs doesn't touch what William K. Black referred to as "control fraud" at the domestic level. Anyways ...)

With no global institutions dedicated to advancing and protecting the interests of people like you and me in this giant parlor game, the losers in this market game are the rights of labor and, ultimately, the American consumer. This brings us to Robert Reich's piece on the wage and jobs recession we're now experiencing.

Reich's argument is a simple one: Because wages have stagnated and even fallen backwards, while record profits and bonuses continue, the American economy is bifurcated and in trouble. And it's getting worse.

One of the reasons wages have stagnated is because corporate America has been sending jobs overseas (aided by very favorable legislation). This dynamic cuts into the wages and salaries of workers who see jobs disappear, and must now compete with more unemployed laborers here, and millions of workers willing to work in sweat shop conditions in the developing world.

How bad has it gotten? Consider the following: The Commerce Department recently reported that over the past decade, American multinationals (essentially all large American corporations) eliminated 2.9 million American jobs while adding 2.4 million abroad. If you're looking for specific examples check this out:

* In 2000, 30% of General Electric's business was overseas, along with 46% of its employees. Today, 60% of its business is outside the United States, as are 54% of its employees.

* Over the past five years, Oracle added twice as many workers overseas as in this country; 63% of its employees now work abroad.

The incredible thing is that workers wages in America have been collapsing at precisely the same time that productivity has been going through the roof.

What should be happening in this scenario - according to economic history and the "laws of justice" Adam Smith spoke about - is that the workers should be sharing in the productivity gains made by industry. Wages in America should be going up. Consumption should be stable, or going up. A real recovery should be happening. But this is not the case. 

Part of the reason for this, as Sachs points out, can be attributed to the power and influence corporations wield around the world. In addition to securing a steady stream of bailout money, they're able to move money and jobs out of the United States, in the process depriving the American economy and its workforce of the resources they need to recover. The incredible thing is that corporations no longer need to rely on the Pinkertons and Baldwin-Felts of the past to intimidate and cow labor.

They simply go to their muscle in the lobbying halls of Washington DC. The blackjacks used by the Pinkertons have been replaced by briefcases of lobbyists in Washington.

There's more. Much more. But one thing is clear. Don't expect the American consumer to lead the recovery. They are buried under a barrage of bad news, collapsing wages, and favorable legislation for corporate America. And, as I pointed out in my book (and 7 months before the market collapsed in 2008), the American consumer is simply tapped out.

- Mark

No comments: