Monday, January 2, 2012

China on Track to Pass America as #1

We used to laugh, smug with our "American exceptionism" whenever we saw cheap goods with the stamp "Made in Japan" or "Made in China". American workers had always thought of themselves and their country superior in every way. We belonged to labor unions, had job security, and healthcare. Our parents used to tell us to eat all our vegetables because people were starving in China.

We had the "American Dream" and we defeated fascism and communism wherever and whenever challenged. We sent a man to the moon, and outspent the U.S.S.R. in military spending to break up the Soviet Union. We were so high and mighty and full of ourselves as we were buying up all those cheap goods, stereos, VCRs and TVs.

That was before American corporations began expanding their operations exponentially overseas after the Vietnam War for cheaper labor to increase their CEO's paychecks. The reason they gave was because of "global competitiveness". Their is no such thing as "corporate patriotism". About that time was also when Wal-Mart began expanding their super-stores into our neighborhoods, putting small business that were selling American-made goods (with higher prices) out of business forever (with cheaper prices).

Manufacturing had drastically declined in America for cheaper labor elsewhere. In the last ten years alone 52,000 factories fled our shores, costing the U.S. over 8 million jobs during that time.

And besides the healthcare industry, maybe now only technology jobs, government jobs, and those in the service industry might be the only jobs that can't be outsourced to a foreign country.

A bartender or a maid working for a hotel that caters to foreign and domestic visitors aren't going to lose their jobs to a chain of hotels and casinos moving to China. Hospitals aren't going away either. And we will always need firefighters, police, and soldiers. And the high-tech industry won't risk their trade secrets to espionage on foreign soil. Even the U.S. Post Office was once a safe and good-paying employer, but maybe not for long.

We can no longer depend on manufacturing any longer, and it won't get any better -- it can only escalate. "Thanks to the globalization of the economy, big corporations and corrupt governments can make stuff in countries where it is legal to pay slave labor wages and then ship their products into the United States for free."- Rep. Betty Sutton

Even American college graduates might only earn $20,000 a year China, because engineers or new graduates in computer science in China might only earn 10,000 RMB a month.

10,000 Chinese yuan = 1588.84 USD. That is approximately $19,068 a year, or $366.69 a week, or $9.17 an hour with a 40-hour work week....slightly more than what a McDonalds worker earns here in the United States. It was these low-paying McJobs at McDonalds that provided the Krocs with many of their McMansions.

An assembly line worker at Foxconn in China might earn $1 an hour, but in the long term Foxconn is considering moving to Vietnam in order to lower labor costs more, by replacing employees with robots at an automated facility in Taiwan. Only upper management positions in American companies in China might earn a compatible salary by U.S. standards. Read my post: Where the Jobs Are...and where they continue to go.

And it's also cheaper to live in China than it is in the United States. The cost of living in China is dramatically lower than that in the U.S., Australia, and Western Europe. In China a nice two bedroom, one bath apartment with wooden floors and marble counters in the kitchen will run around 4,500 RMB a month (about $715 USD).

Utilities are shockingly low, thanks to the government’s continued subsidy. In the aforementioned apartment, one could expect to pay an additional 300 RMB in utilities per month (less than $50).

And as far as small businesses in the U.S. is concerned, it's lack of demand, not regulations that's hurting them. Millions of Americans with no jobs, or earning low pay, have less discretionary spending than they used to, especially as the cost of living continually goes higher. Forty years ago dad paid the bills, now 2 paychecks barely cover the costs for a family of four.

And it's not necessarily taxes either. The corporate tax rate in China is 25% (20% for small businesses), but for the past 25 years the average "effective" tax rate paid by American corporations for U.S. revenues has averaged only 18%. They are already paying less in taxes, so even ZERO taxes couldn't keep jobs in America, unless of course, we were not only willing to work for less than Chinese workers, but live with a much lower standard of living. Read my post Record Profits + Record Bonuses = Zero Jobs

And with energy and food prices constantly going up in the U.S., how will earning less be survivable for American workers to make American businesses more "competitive"? How can taxing corporations less (or more) ever affect the job outcome?

The cost of payroll is a business's biggest expense, whether it be for R&D, an engineer's pay, the cost for the building of a new factory, or for the menial labor jobs on an assembly line. The cost of labor will always trump whatever the corporate tax rate is - it could be set at either 90% or 0%, it wouldn't matter - not if a company had the option of cheaper labor somewhere else. This has always been the case.

Many American CEOs and banking executives earned more than their company paid in taxes. And American CEOs are paid much more than in any other country. Today, American CEOs make 263 times the average compensation for American workers, up from the 30 to 1 ratio in the 1970s. In 2010 alone, CEO pay went up 27 percent while average worker pay went up just 2 percent. The most recent ratio from the Institute for Policy Studies showed a high for 2010 at 325 to 1. In previous years the ratio on two occasions has exceeded 475 to 1 -- to be specific, 516 to 1 in 1999 and 525 to 1 in 2000.

According to a new report on executive pay put together by the independent research firm R. G. Associates, there are currently 32 companies that actually spent more on compensation for their top executives in 2010 than they paid in corporate income taxes:

"Total executive pay increased by 13.9 percent in 2010 among the 483 companies where data was available for the analysis. The total pay for those companies’ 2,591 named executives, before taxes, was $14.3 billion. Warming to his subject, Mr. Ciesielski also determined that 158 companies paid more in cash compensation to their top guys and gals last year than they paid in audit fees to their accounting firms. Thirty-two companies paid their top executives more in 2010 than they paid in cash income taxes." Also read: Pay Disparity Ratio

And the CEO's stock-options are taxed at only 15% for capital gains, while the middle-class is taxed at a higher rate. See my posts How the 1% bilks the 99% and Low Wages Kills Jobs, Not High Taxes.

Last year there was a bill introduced in the House for closing the loopholes that allows wealthy money managers to pay the lower capital gains rate on their income (called “carried interest”) and no longer allowed multinational corporations to claim tax credits on earnings that they keep overseas.

But the big business lobby, led by the Chamber of Commerce and the Business Roundtable, had its sights set on the Senate, in the hopes of preventing the changes.

And House Republicans might want to take a gander at what’s garnering interest on their own websites, as the proposal receiving the most “interest” (and the second highest number of overall votes) in the job creation section is to “Stop the outsourcing of jobs from America to other countries that do not pay taxes into the U.S. -- and stop the tax breaks that are given to these companies that are outsourcing.”

Congress has yet to approve a bill that closes corporate tax loopholes that allows corporations to claim domestic tax credits on profits that they never bring back to the U.S. Republicans not only obstructed that bill, but also put forth an alternative that cut Medicaid and infrastructure funding, while leaving the tax loopholes intact.

At the same time, corporate tax revenue has plunged to historic lows. During the 1960s, for instance, the United States consistently raised nearly 4 percent of GDP in corporate revenue. During the 1970s, the total was still above 2.5 percent of GDP. But the U.S. now raises less than 1.5 percent of GDP from the corporate income tax.

This isn’t really surprising when you consider that several of the largest U.S. corporations simply paid no taxes at all last year. General Electric, for instance, made more than $5 billion last year, but had a tax rate of negative 64 percent, meaning it received billions in tax benefits. Boeing hasn’t paid any federal income tax in three years, while it's CEO Jim McNerny made $19 million last year. (See my post about the defense industry).

At the moment, a slew of multinational corporations are already paying exceedingly low taxes, and lobbying for more. With corporate taxes already historically low, and corporations flush with $2.2 trillion in cash, and paying tens of millions to their CEOs, there’s little reason to grant these huge companies (the "job creators") yet another giant tax giveaway.

And their is little reason for them to pay their employees a "living wage" either, not if they're living and working in the U.S.

If we argue that this excessive and gross income disparity is unjust, we're called "socialists". If we argue that the U.S. Chamber of Commerce shouldn't be encouraging and helping companies to outsource jobs with trade agreements, we're called "anti-business". If we argue that companies shouldn't receive tax benefits for outsourcing domestic manufacturing and demand "fair trade" instead of "free trade", we're called "anti-capitalists".

How can American workers ever again compete for middle-class wages in America, whether we have an advanced college degree or not, if jobs keep hemorrhaging overseas for cheaper wages? Are we to just surrender to the fact the middle-class will eventually and completely disappear in America, and that after over-taking Japan has the world's 2nd largest economy, China is on track to over-take America as #1?

And if so, should we just wave a white flag now and scream, "I surrender!"

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  1. great article, bud. really well written summary. its amazing how different things are in just the past 10 years living in America. it's not the America I grew up in, or the one I was promised in public K-12 school. that's for sure.

  2. Just out today:

    "Signs of Strength in Chinese Economy"

  3. And I keep hearing that China's unemployment rate is just above 4%

  4. The very next day, just as I said, David Macaray (Playwright; Labor Columnist; Author) mentions in this op-ed piece for the Huffington Post:

    "Fast food and retail workers will be the target of the next big union membership drive. Not only are these workers underpaid, under-appreciated and fed up with being marginalized, the jobs they do are jobs that can't be shipped to another state or another country, so those tired old management threats of pulling up stakes can't be used against them. They're ripe for organizing."

    I commented: "I believe that the hospitality industry should push for more as well, and so should those working in giant retail outlets (like Wal-Mart), because service industry jobs are the only ones (besides "800" customer service operators) that can't be outsourced overseas...because not everyone wants to buy everything online...and pizza can't be delivered from China."

  5. Well said Bud......Mike, you are absolutely correct....this is not the America any of us grew up in or expected to retire in....the robber barons just want more and more.....I for one of tired of giving and not receiving anything in return....I have nothing left to give....


    Forget about competiton from China. Because of their one-child policy, they will be an aging and uncompetitive society with massive social problems by around 2030.

    The problem is that jobs being outsourced to China today will just go to other countries with plentiful cheap labour or else be lost to automation. The wealth in America is still growing - since the Fed has been printing money and will print again (with QE3), and again. The problem is every time new money is supplied into the system it just ends up in the hands of the bankers and the filthy rich 1%. There must be an equitable way to distribute this money like in the Scandinavian countries.