Outsourcing
I just read an article detailing a conversation between Steve Jobs and President Obama. At an technologies industry dinner last year, the President opened the floor for questions and Steve Jobs began asking him a question. The President then asked Jobs "what would it take to make iPhones in the United States? Why can't that work come home?"
Jobs' reply, "Those jobs aren't coming back."
The MegaCorps have no interest any more in investing in America. Apple used to make all of its products in the United States, now it makes almost nothing here. And Apple is not alone, this is being repeated in company after company, industry after industry. All of them are moving their manufacturing to other countries.
Morris Berman, author of Dark Ages America describes this process as: at the end of empire, the moneyed interests rape all of the money out of the system to take it to where they think the next empire will be.
Those jobs, that capital, is never coming back.
I have blogged in the past about how greed will destroy capitalism, and eventually it will, unfortunately, the path to its death will be strewn with millions of bodies of those it discarded and crushed in it's death throws. Before succumbing, Capitalism, in its current greed driven form, will wreck entire nations. I should point out, this is not a rant in support of communism or socialism, as those are also failed models. The seven deadlies will always bring economic systems down.
No, what I would like to look at is what this flight of industry means. There are a few different scenarios that are possible.
First, we continue to outsource our misery. This is what we are doing now. In America, we have demanded things like living wages, an end to sweat shops, workplace safety and clean air and water. These are things that most Americans believe are necessary for a civilized and enlightened society, most American, that is, except the captains of industry. The people who run the companies see these things for what they are, unacceptable infringements on profit margins.
Every minimum wage law, every pollution regulation, every safety policy cuts into the money that they can make. To most people, that is a decent trade off, but not to the Masters of the Universe. As Stephen Bainbridge said, " The social obligation of business is to sustainably maximize long-term profits for shareholders. Nothing more. Nothing less." Anything that cuts into profit margins is unacceptable.
Therefore, in this view of corporate responsibility, the responsible action is to move the company to a place where pesky things like human dignity do not interfere with profits.
The technical term for this, by the way, is "Externalizing Costs." We gain cheaper goods by outsourcing the environmental and human damages to another country. Every time you buy an item from Wall-Mart that is made in China, you have externalized these costs.
This scenario does not have a happy ending for either our country or the places we move our industry to.
In the United States, it means fewer and fewer jobs, especially in the low education, high wage sectors of manufacturing. An assembly line worker typically does not need a college education, but they make a very comfortable, middle class wage. They can buy a house, go on vacation, have nice things and even send their own children to college. Without industry, we move even more to a two class society of highly educated elites and poorly educated service workers. (And one only needs to look at France circa 1780 or Russia circa 1915 to see how this ends, its not pretty.)
But this also does not have a happy ending for the countries we outsource to either. As those countries get richer, and consequently, more educated, the workers there will begin to rise up as American workers did in the late 1800's and early 1900's. They will begin to demand change as well. But the captains of industry did not make the same mistake they made in the United States.
Here, we are a democracy. (I know, we are technically a Republic, but everyone has a say in how the country is run) If the corporations are grinding us underfoot, we have the recourse of the ballot box. Now the corporate masters are locating in totalitarian countries, where it does not matter how much the people scream, they will just massacre the protesters and bring in new workers. Never doubt that they will depopulate entire cities to try to suppress rebellion. (And trust me, they will not allow the Arab Spring to spread, efforts to shut down social media are already underway across the planet. SOPA anyone?) The MegaCorps will prop up, and even put into place, ruthless dictators who will bow to those corporations.
This scenario ends with a devastated America and a totalitarian ruled Third World.
The second scenario is almost as bad, especially for America. We will normalize the value of a dollar to that of the Rupee. In other words, we will drastically reduce the value of the dollar relative to other currencies. In India, most people live on a few hundred dollars a year, much like Americans in the early 1900's. We think, in our little bubble, that that means that they all live in poverty. It is true that they do not have our standard of living, but with that amount of money, they have a comfortable life. Again, much the same as an American's life in 1910.
I went to India a few years ago, and felt like a Rockefeller because I had a few hundred dollars in my pocket; I could afford to buy almost anything I wanted. The reason for this was the exchange rate. My dollar was worth 45 Rupees, and a Rupee was worth slightly more than 2 cents. But to an Indian, a Rupee had a similar amount of purchasing power as a dollar here. I would buy a cup of coffee for 2 Rupees, which is like a $2.00 cup of coffee at Starbucks.
Profit is made on the exchange rate. Industry can pay an Indian worker 40,000 Rupees a year, but that amounts to only $800.00 US Dollars. The Indian worker can live as comfortably in India on that as an American could live on $40,000.00 a year (provided they don't want to travel outside of India) and the American company can save $39,200.00 on salary costs.
If we want to bring industry back to the United States, we would need to reduce the value of the dollar to approximately 2% of its current value. You can imagine the havoc that would wreak on both the American and Global markets. Industry would return, at the cost of a devastated global economy. This scenario also works in the opposite direction as well, that the Rupee could rise in value to be equal to the U.S. Dollar. This would have the same effect, just from the other end.
Unfortunately, if America fades as an empire, which it already is doing, this scenario will be extremely likely, especially given that our currency is not backed by anything more than "the full faith and credit of the United States." If we were on the Gold or Silver Standard, this couldn't happen, because our currency would be pegged to something of real value, as opposed to an agreed upon worth. (I'm not going all Ron Paul here, but he does have a point, even if it is completely unfeasible at this time.)
The final scenario is the most optimistic, but it requires all Americans to join together and take control of our destiny.
Buy American, and only buy American.
If people rise up and demand American goods, and refuse to purchase products made outside of the country, we will cut into the profits of the MegaCorps and they will notice it.
Then one of two things will happen: either they will accept a reduced profit rate in order to make any profit at all; or other companies will rise up to meet the demand, and they will make things here because there is a market for them.
For too long we have been victims to the market, without realizing that there is no market without us. We do have some control over the economy; we are not at the mercy of the Masters of the Universe. We can turn the free market against the people who's only obligation is to line their own pockets.
The Law of Supply and Demand states that when there is a demand, there will have to be a supply to fill that demand. If we demand only American goods, then the Market will have to supply them, one way or another.
This path requires courage, and a willingness to forgo cheap goods, but if we all stand firm, and do not waver, we will succeed.
And this success has further ramifications. Without the need to protect cheap labor, the MegaCorps will have no incentive to continue to prop up totalitarian regimes, other countries will see that you can have a thriving economy and still have human rights and a clean environment, and the corporations will learn, with great power comes great responsibility.
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