One of the stranger elements of the current attention to the disconnect between corporate profits and jobs: some of us have lived through this before. It's old news, a repeat. It already happened. Where? In Michigan, in the auto sector. After the defeat of the unions in the 70s, the massive layoffs and cut backs, the elimination of hundreds of thousands of jobs, the big three auto makers in the US became increasingly profitable. Remember the rhetoric: stream-lining, efficiency, flexibility. Michael Moore covers some of this in Roger and Me. I'm not saying that the current attention to the calamity of 30 years of neoliberalism isn't noteworthy. It is. And it needs to be put in a context that let know that there is nothing unpredictable or unexpected about current unemployment. As Chrysler goes, so goes the nation. Or what's good for GM is good for America. The neoliberal powers that be think of good for GM as good for stockholders. For the last thirty years, we've been inculcated with this same way of thinking. Now it's truth is appearing to those who convinced themselves that unions and pensions were bad and enormous bonuses and golden parachutes were good.
Today, wages are still down, employment remains low and sales revenue isn't up much, either. But profits are the outlier. They're positively soaring.
Among the 175 companies in the Standard & Poor's 500-stock index that have released their second-quarter reports, the New York Times reported Sunday, revenue rose by a tidy 6.9 percent, but profits soared by a stunning 42.3 percent. Profits, that is, are increasing seven times faster than revenue. The mind, as it should, boggles.
How can America's corporations so defy gravity? Ever adaptive, they have evolved a business model that enables them to make money even while the strapped American consumer has cut back on purchasing. For one thing, they are increasingly selling and producing overseas. General Motors is going like gangbusters in China, where it now sells more cars than it does in the United States. In China, GM employs 32,000 assembly-line workers; that's just 20,000 fewer than the number of such workers it has in the States. And those American workers aren't making what they used to; new hires get $14 an hour, roughly half of what veterans pull down.
The GM model typifies that of post-crash American business: massive layoffs, productivity increases, wage reductions (due in part to the weakness of unions), and reduced sales at home; increased hiring and booming sales abroad. Another part of that model is cash retention. A Federal Reserve report last month estimated that American corporations are sitting on a record $1.8 trillion in cash reserves. As a share of corporate assets, that's the highest level since 1964.
Why invest in new plants, offices and workers, particularly here at home? Spooked by the 2008 crash, corporations want to keep more money under the mattress. More important, they're sitting pretty as profits rise.
Is this model sustainable? It's hard to say -- a double-dip recession could plunge their profits yet again. But from the American worker's perspective, the model, no less than a new downturn, is an unqualified disaster. It portends the kind of long-term, structural unemployment that we haven't seen since the 1930s. It locks into place a generation of reduced incomes.
This dystopian America already stares us in the face. Fully 46 percent of the unemployed have been without work for six months or more -- the highest level since the Bureau of Labor Statistics began measuring such things in 1947. Two years ago, just 18 percent of the unemployed were jobless for more than six months. America's private-sector job machine -- the marvel of the world since 1940 -- has clanged to a halt, and there's no place for it in corporations' new business model.
I too was not surprised in the least that the financial sector would rebound and unemployment remain high, that is exactly what happened during the early Reagan years, and why it was so weird to see the media elevate Reagan to mythic god status. Wall Street did well and unemployment remained high, costing Reagan popularity back then,at least among the working class...
Posted by: Robert Allen | July 29, 2010 at 05:05 PM