gracen1qf: Making Money Jobs

History will record 2010 as the year Washington became "business friendly."

Not that it was all that unfriendly before. Some would say the bailouts of Wall Street, AIG, GM, and Chrysler were about as friendly as it can get. In addition, Washington gave windfalls to drug companies and health insurers in the new health bill, subsidies to energy companies in the stimulus package, and billions to domestic and military contractors.

But for corporate America it still wasn't friendly enough. Before the midterm elections, Verizon CEO and Business Roundtable chair Ivan Seidenberg accused the president of creating a hostile environment for investment and job-creation. In the midterms, business leaders overwhelmingly threw their support to Republicans.

So the White House caved in on the Bush tax cuts for the wealthy, and is telling CEOs it will be on their side from now on. As the president recently told a group of CEOs, the choice "is not between Democrats and Republicans. It's between America and our competitors around the world. We can win the competition."

There's only one problem. America's big businesses are less and less American. They're going abroad for sales and employees. That's one reason they've showed record-breaking profits in 2010 while creating almost no American jobs.

Consider one of most popular Christmas products of all time -- Apple's iPhone. Researchers from the Asian Development Bank Institute have dissected an iPhone whose wholesale price is around $179.00 to determine where the money actually goes.

Some shows up in Apple's profits, which are soaring.

About $61 of the $179 price goes to Japanese workers who make key iPhone components, $30 to German workers who supply other pieces, and $23 to South Korean workers who provide still others. Around $6 goes to the Chinese workers who assemble it. Most of the rest goes to workers elsewhere around the globe who make other bits.

Only about $11 of that iPhone goes to American workers, mostly researchers and designers.

Even old-tech American companies made big money abroad in 2010 -- and created scads of jobs there. General Motors, for example, is now turning a nice profit and American investors bullish about its future.

That doesn't mean GM will be creating lots more blue-collar jobs in America, though. 2010 was a banner year for GM's foreign sales -- already two-thirds of its total sales, and rising. In October, GM became first automaker to sell more than 2 million cars a year in China. The company is now making more cars in China than in the United States.And GM has just signed a deal with its Chinese partner to try to crack India's potentially huge auto market.

Meanwhile, back home in the U.S., GM has slashed its labor costs. New hires are brought in at roughly half the wages and benefits of former GM employees, under a two-tier wage structure accepted by the United Auto Workers. Almost all GM's U.S. suppliers have also cut their payrolls.

It's much the same even for America's biggest retailers. 2010 wasn't an especially good year for Walmart in the United States. Its third-quarter sales fell, as U.S. shoppers continued to hold back.

But Walmart International is contributing mightily to its bottom line. Its UK business, Asda, will be adding 7,500 new jobs next year. Walmart is also doing well in Japan and Brazil, and hiring like mad in both countries.

So when President Obama tells American CEOs our biggest challenge comes from abroad, you've got to wonder. The leaders of American business are already abroad, and doing quite nicely.

Just after the midterm elections, the President's chief economic advisor, Larry Summers, told a group of top U.S. CEOs that the election was partly a "rejection of elites... that were seen as more citizens of Davos than of their countries." American CEOs, Summers warned, should "think very hard about their obligations as citizens of this country."

Yes, they're citizens. But first and foremost they're CEOs. And CEOs have to show profits - wherever those profits come from. Under American-style capitalism, profits matter. Jobs don't.

2010 was the year Washington became even more "business friendly." The result has been more and better jobs -- but not in America.

Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.

President Obama spent much of Wednesday huddled with a group of business executives, an effort The New York Times said afterward "went a long way to reset the tone of the relationship between Mr. Obama and corporate America" in the eyes of the corporate chieftains who attended.

That's all well and good, if the problems with today's economy were rooted in a lack of warmth and fuzziness between President Obama and corporate CEOs. But they aren't. For decades, the interests of corporate lobbyists—the people acting on behalf of many of the executives at the White House meeting—have been at odds with the interests of working people. The White House "making peace" with corporate CEOs, to use The Washington Post's description of the meeting, is one thing. But Wall Street needs to make peace with those of us who have been forced, as a result of the conservative policies they promoted, to live through a decade of stagnant wages, unemployment and underemployment. Wall Street needs a reset with working America.

Unfortunately, it's not at all clear that this meeting delivered much for working-class people. The Post reported that "after the meeting, several chief executives said their conversation with the president was constructive and open as they discussed education, trade, taxes and jobs. But the executives and Obama remained vague about specific outcomes they expected from the meeting."

And one of the few specifics reported from the meeting is highly disturbing. Bloomberg reported that the CEOs had their hands out for yet another tax cut:

While Obama has called on the CEOs to spend the $2 trillion in cash their companies have accumulated on job creation, the executives said much of that is earnings from overseas sales that are retained abroad to avoid paying U.S. corporate income tax. U.S.-based multinational corporations pay corporate income tax on earnings when they are brought back to the U.S. If the revenue remains abroad, either in cash or investment in overseas facilities, the money isn’t taxed.

Obama said he would consider the issue and asked what the executives would be willing to give up in other corporate tax rates to make sure it remains revenue neutral.

Actually, in many cases the earnings involved are not necessarily from "overseas sales." Many multinational corporations have created elaborate schemes to ensure that domestic sales are credited as foreign ones in order to avoid paying corporate income tax. It's how Google avoids paying billions in corporate income taxes to the United States and the United Kingdom.

President Obama has rightly pledged to go after this tax dodge and sent some proposals to Congress last year that Citizens for Tax Justice said were "steps in the right direction." Businesses have countered with demands for a "tax holiday," The Financial Times reported in October. Again, at least until now, the Obama administration has resisted. One reason, as the FT notes, is that there is no guarantee that the money coaxed back into the U.S. will actually be used for investment and job creation.

We've been here before. In 2004 the Bush administration and the Republican Congress gave corporations a tax amnesty on profits sheltered overseas. The benefits for workers were negligible. Gannett News Service reported earlier this year in a story about Sen. Barbara Boxer's support for an offshore tax break:

A Congressional Research Service analysis published in January 2009 found that 10 of the top dozen companies that took advantage of the 2004 break cut jobs. Hewlett-Packard repatriated $14.5 billion and laid off 14,500. Pfizer repatriated $37 billion and cut 9,000 jobs in 2005.

California-based Oracle and Intel also repatriated foreign earnings. The money helped Oracle acquire two U.S. companies and helped Intel build a new factory

The Business Roundtable, a champion of the tax amnesty idea, says of the money that came back to the U.S. as a result of 2004 holiday, 25 percent went to capital investments and 23 percent to hiring and training new workers. Even that positive spin suggests the country doesn't get very much for coaxing businesses to do less than what they should be dong as corporate citizens.

Corporations succeed in the United States not simply because of what they do on their own. Their success depends on the quality of public schools that prepare their workers, transportation networks that move goods and people, agencies that help keep people healthy and safe, and efforts to ensure that each American is able to maintain at least a minimal standard of living. All of these are government functions that corporations undercut when they engage in schemes to avoid paying taxes, leaving the rest of us to struggle with the consequences.

The businesses that profit as a result of the public commons that We the People provide should not have to be given special inducements to pay their fair share toward supporting that commons. (As it stands now, contrary to conservative claims to the contrary, the truth is U.S. corporations pay some of the lowest tax rates of major industrial powers.) That is the starting point from which President Obama should begin in building a new tax framework in which businesses and Main Street can profit together in a new economy.

Even as corporations are seeking a tax holiday, these same corporations spent hundreds of millions of dollars electing congressional candidates opposed to government initiatives that would stimulate the economy and stoke the demand that would coax their hoarded cash off the sidelines. Instead of egging on, tacitly or otherwise, the anti-spending crowd, these CEOs could still choose to back a real economic stimulus—not just cross-your-fingers-and-hope-they-trickle-down tax cuts, but real investment in the economy's future.

Lew Prince, a small business owner in St. Louis, recently penned an op-ed that offered a more Main Street perspective on what businesses need to prosper:

We shouldn’t borrow billions more dollars from China and Saudi Arabia to give to the wealthy. Instead the wealthy should pay their fair share. We need adequate tax revenue to invest in our economy. More tax cuts at the top won’t create jobs. But we will create jobs and strengthen our economy by rebuilding our crumbling roads, bridges, public transit, levees and water and gas pipelines. We will save and create jobs by investing in education and clean energy research and manufacturing now growing much more rapidly in other countries.

Now that Obama has met with business executives, his next step should be a summit meeting with the unemployed. And then let's have a real debate in which business executives and their conservative benefactors are called to account on whether they are really interested in the fates of American workers or just in their own balance sheets.

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Wednesday, January 5, 2011

Making Money Jobs

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