The major metropolitan areas of the United States are in deep trouble. These centers formally had diversified manufacturing employment with hundreds of thousands of stable tenure jobs from the blue collar level to middle and executive levels. Manufacturing jobs have been disappearing steadily though mergers, consolidations and movements of the manufacturing operations to low labor cost locations, such as Mexico, the Caribbean, Portugal, Spain, India, parts of the Far East and Africa. NAFTA and GATT and government policy have contributed to a steady export of jobs.
The elimination of quality jobs through downsizing by major corporations has hit epidemic proportions. Corporate philosophy to run a leaner, meaner ship delivered a shock wave throughout this country in the 1980's and in the 1990's. The big three auto manufacturers, General Motors, Chrysler, and Ford, reduced workforces considerably from 1978 to 1995. The manufacturing sector in the United States lost approximately 2.8 million jobs over the same period. In 1996, AT&T announced that they would eliminate an additional 44,000 workers (they subsequently lowered the figure to 31,000) while defense contractors lost 500,000 jobs over the last decade. The effects of downsizing, according to Lester Thurow in his new book The Future of Capitalism illustrates empirically his opinion of the downsizing effect.
In the first downsizing wave, 12% of the outplaced workers left the workforce completely, 17% remained unemployed after two years. Of those finding new employment, 31% took a wage reduction of 25% or more and 32% of worker's wages were reduced by one to twenty-five percent while only 37% found no wage loss. What are the economic dynamics when 63% of people finding replacement jobs are taking such drastic reductions in their standard of living? Moreover, what are the consequences of social services, health care or even defense when diminishing taxes are collected? An extreme example is cited by Thurow, that in studying RJ Reynolds Nabisco's hostile takeover and subsequent layoffs, one discovers 72% of the workers found new positions at an average of only 47% of their old wages. Corporations now have started their own out sourcing networks. These out sourcing workers are paid at a much lower wage with little or no health benefits.1
In the past, full time employees working for major corporations had health care benefits and pension funds, by out sourcing, corporations free up these costs, thereby, improving earnings per share and stock prices. A number of the mega-retail discount chains as well fail to provide the usual health and other fringe benefit packages provided by the displaced "Main Street" retailers. The societal implications of America with a large percentage of its workforce going part-time is unthinkable in its impact. Ultimately these costs for family security will have to be faced by the general taxpaying public.
Ravi Batra, author of The Myth of Free Trade, stated that the watershed year for the American standard of living was 1973. It was the year when real wages started its long decline, family poverty rates increased and rising inequality between rich and poor materialized. Batra clearly stated that "economists concede that GNP and per capita income are not ideal measures of national prosperity."2 The President's Economic Report for 1992, for instance, makes the statement that growth in real GNP or GDP cannot assure an increase in the level of living. This is especially true when applied to real wages. A truer measurement, Mr. Batra states, is the weekly earnings paradigm which is applicable to production and non-supervisory workers, who according to the United States Bureau of Labor Statistics, constitute 80% of all employees. Therefore the GDP and per capita figures fall flat or distort the real picture. These statistics exclude executives, managers and professionals such as lawyers, doctors, etc. According to Batra's calculations, real wages increased by 15% between 1950-55; 7% between 1955-60; and only 6% between 1970-73.
Since 1973, real wages have fallen steadily. More importantly, this decline has impacted at least 80% of the work force even before increases in Social Security and taxes are calculated into the equation. Thus take home pay is seriously impacted in an adverse way thus requiring families to have multiple wage earners. During the period between 1975-1995, the inflation rate rose 183%, while blue collar and white collar workers earnings across all private industry increased a mere 142%. Average salaries in 1995 were $20,559 dollars. This average earnings unfortunately will buy $3,500 less than could have been purchased in 1975. Real wages for most workers in America are falling rapidly.3 The change in lesser buying power is not bringing the Third World closer to our standard of living but in fact is reducing our standard of living in the direction of Second and Third World levels. Extensive competition among underdeveloped countries guarantees future cheap labor markets. Many of these Second and Third World nations disregard constructive environmental regulations and utilize child and prison labor, as well as paying wages which can be as low as $1.00 per day.
As the quality jobs continue to decline at such giants as Ford, General Motors, Chrysler and AT&T, new jobs are being created by the tens of thousands by mega-retail discount chains. However, when you do a comparative analysis on the employment picture (GM vs. Wal-Mart), the facts become obvious and startling. In a three week series in The Philadelphia Inquirer on "The American Dream," which ran in September 1996, a clear picture of the future of American jobs was presented. From 1978 to 1995, the big three (GM, Ford, Chrysler) had reductions from 667,000 to 398,000 hourly employees. Not to worry, as Washington and many economic pundits point out, new jobs are being created to replace the old ones. Employment by Wal-Mart alone accounted for a 2890% increase over the past 20 years. In 1978, Wal-Mart had 21,000 workers and revenues had reached the $100 million dollar plateau; by 1995, it had over 628,000 workers and revenues were approaching the $100 billion mark. According to the data, apparently, one out of every 200 American civilian jobs is being created at Wal-Mart. The Inquirer series explains a qualitative analysis is important. For example, 30% of Wal-Mart workers are part-time (full-time is 28 hrs., therefore, the 30% is exceedingly conservative figure by traditional standards). Positions at major corporations such as the big three are full-time, i.e. 35 - 40 hrs/week and overtime pay is not unusual. As for pay, a GM assembler earns a minimum $18.81/hour in wages; a tool and die maker $21.99/hour. Most Wal-Mart workers earn a dollar or two above the former minimum wage of $4.25 an hour. Then there's the matter of benefits. The auto workers have a guaranteed annual pension. The Wal-Mart employees do not. The auto workers receive fully paid health benefits. Wal-Mart part-timers receive no company paid benefits and "full timers" must pay for part of their health insurance. The Inquirer series also states that new jobs should have been created replacing the old by new technologies, such as in cellular phones; however, manufacturers in those high technology industries seem to prefer lower cost overseas production.4
Looking at the quantitative and qualitative analysis in Chapters III and IV of this report, one can clearly see that small businesses throughout the United States are deeply concerned about their future ability to survive the dramatic increase in competitive power of the mega-retail discount chains. Sixty percent of the Californians responding predicted losses in employment with 21% predicting those losses to total 50% or more. Illinois showed 48% predicting job losses with 13% estimating losses of 50% or more. Sixty-two percent of Pennsylvanians responding predicted job losses, with 18% concerned about job losses of 50%or more. New York showed 57% predicting job losses with 16% estimating losses of 50% or more. These small business are also looking at lost profitability, reduced sales volume and lower employment.
Small business owners have been the major backbone of the U.S. economy providing necessary goods and services while transferring sales tax benefits toward public schools, libraries, fire and police and a myriad of the municipal functions. Many of these small business are suffering attacks by the mega-retail chain stores, with their large volume buying power, and seemingly unlimited resources. Globalization and free trade may be a panacea for the transnational corporation; but small businesses, with their limited buying power and potential loss of wholesalers, are at the mercy of the very business with which they are in competition.
The Changing Economy
Polling national opinion in the 1950's and 1960's, one would find that approximately 29% of Americans thought the country was managed specifically to help rich Americans. In 1992, 80% of Americans believed this to be true. Whether these ideas are factual or not is irrelevant, the impression or perception created is becoming a mind set in America. The lead article in The Philadelphia Inquirer series mentioned earlier does support the 80% point of view. The middle class in America, according to the Inquirer journalists, is under attack. In 1970, just 26 years ago, 57% of the population was considered middle class - by 1993 only 47% was in that category. While the middle class has been shrinking, two other segments of society have been increasing. The poor category increased from 39% to 45%, while the affluent (very rich) class doubled in size from 4% to 8%. Moreover, the top 1% of households controlled over 1/3 of the nation's net worth, and the next 9% holds 36.8%. Summarizing these statistics, 10% of the population controls over two-thirds of the wealth, while 90% holds the remaining one-third.5
The following quotation from a recent article in The Wall Street Journal, "Retail's Shrinking Middle," confirms through consumer behavior what the Inquirer stated earlier in its series: "Traditionally, the middle' was the power position in America business. They perfected the one-size fits all' business model, offering moderate service, prices and information to customers who had fairly similar demands."6 The major theme of the article points out that over the past 10 years consumers are moving to both extremes. Businesses such as Price Club, Wal-Mart, Sam's, Dell Computer and discount brokerage firms have flourished, satisfying consumers looking for no frills at low cost. At the other extreme, companies like Saks' 5th Avenue and Nordstroms thrive satisfying the affluent consumers for whom cost is not an issue. It is the middle of the road corporations like J. C. Penneys, Broadway (now bankrupt), Sears, and Montgomery Ward which have stagnated. The success of the mega-retail discount chains, such as is a direct manifestation of the "shrinking middle."
Thurow states in his book, The Future of Capitalism, that "When the distribution of income is altered, who sells what to whom quickly adjusts. Marketing and production shift to focus on the groups that have been gaining purchasing power."7 The others simply lose market share and eventually fade away. In Mr. Thurow's opinion, the shifts have been occurring due to fewer numbers of customers with middle class incomes. It would follow that the success of the mega-retail discount chains might possibly contribute to the destruction of the middle class.
In Thurow's example, stores like Sears, J.C. Penney's et. al. were locked into a fixed formula concentrating on middle class buyers; thus they exhibited an inability to adapt either upward or downward which created economic problems and hardship for those companies. Thurow hypothesized that in the future such mega-retail discount chains as Target, Kmart and Wal-Mart might have problems because their market is the bottom 60% of families. With real earnings now falling for these families, their purchasing power will also decline.8
In the Inquirer series on "The American Dream," it was noted that from 1980-1995 the United States has compiled a perfect record - 16 straight deficits in 16 years. It is without equal . . . the worst performance in the world. During the same period Germany achieved a $658 billion dollar surplus while Japan's surplus exceeded $1 trillion dollars. Reiterating an earlier figure, the American trade balance with Mexico prior to NAFTA acceptance was a surplus of $1.7 billion. Since the agreement incorporating lower tariffs with less restrictions, the surplus has turned red to the tune of $15.4 billion. China's trade deficit was a mere $1.6 billion in 1986, today it has catapulted to a $33.8 billion surplus - an increase of over 2000%.9
In the past several decades, every President from Johnson to Clinton has made the claim that for every billion dollars worth of exports, 20,000 jobs are created at home. To follow this logic, for every billion dollars in imports, 20,000 jobs should never materialize or would be lost to foreign countries. During the years 1980 - 1995, the United States amassed a trade deficit of $1.7 trillion, while during the same period, Japan was able to create a surplus in trade of $1.1 trillion. Using the formula of job loss of 20,000 employees to $1 billion in trade deficit - it is obvious why American jobs in manufacturing and other industries have disappeared. Add to this the threat of retail job loss stimulated by the mega-retail discount chains - what is the future for American employment? Is our government realistically concerned with the future?
If it is agreed that a favorable trade balance of $1 billion is equal to a gain of 20,000 jobs, then an unfavorable trade balance of $1 billion would mean a loss of 20,000 jobs and result in a negative impact on the nation's GDP. In a given situation, if 20,000 jobs are gained, the net gain to the economy could be much larger than 20,000 jobs because of the regenerative purchasing power of the 20,000 employed. For example, in addition to the gain of 20,000 jobs there could be an additional 20,000 jobs generated between secondary and tertiary economic activity. Basic payroll generates additional payroll due to the respending patterns. The multiplier can also be applied to the situation of a loss of jobs and secondary and tertiary respending. The greater impact could be as much as three to one. In other words, the loss of jobs and payroll resulting from the displacement of small retailers by mega-retail discount chains, not only affects the retail employment picture but also all others employment companies in the area. The loss of jobs because of the multiplier effect is staggering when one looks at the raw numbers of jobs disappearing but to consider double to triple the amount is unthinkable. Yet this is the impact of these policies.
The Negative Impact of Employment Economics on Community Security
As a nation we complain continuously about the moral crisis in America; where character is diminished, children are having children, and crime increases with few exceptions. Our inner cities, as explained in Chapter VIII on corporate welfare, are under economic attack with no jobs available. When the United States, viewed by some as the moral light for the free world, signs agreements and gives "most favored nation" status to nations that use child labor, political prisoners and slave labor in order to manufacture goods which compete directly with American workers, and one fails to note a voice of indignation or disapproval, one must examine the contradiction. Our "conditioning" or "blindness" to these situations is shameful. When it is publicized that mega-retail discount chains are allegedly using child labor either directly or through surrogates in Honduras or in other Second and Third world countries, the listener simply listens for a few minutes returns to business as usual. In New York and Los Angeles sweat shops are discovered using illegally smuggled children to manufacture goods for American corporations - and little is done.
America's Trade Deficit Continues to Grow As We Export Jobs
In the last twenty five years, America's trade deficit has ballooned to $1.9 trillion dollars. Every foreign country on the Pacific Rim has used the United States as its stepping stone economically into the 21st century. Japan, Taiwan, China, Indonesia, Singapore, Korea, and Bangladesh among others. The one significant economic commonality, with the exception of Japan, is cheap labor with few political and economic restrictions. How does the American worker compete? In the last twenty years attributable to American trade policy, millions of manufacturing jobs have vanished. In 1970 along the Mexican border there were sixty-five employers (Maguiladoras) with 22,000 workers; in 1991 more than 1,700 employers hired over 500,000 workers. The incorporation of NAFTA in 1994 was supposed to produce new jobs and to be a gateway to the future with the vehicle being free trade.10
An October 1996 article in U.S. News and World Report reported upon earlier showed that the trade balance with Mexico before NAFTA was a positive $1.7 billion and after NAFTA, a negative $15.4 billion with a negative trade balance continuing at one billion per month. Imports from Mexico before NAFTA were $40 billion; after the agreement $61.7 billion.11 While the United States Trade Office estimates that NAFTA has cost only 44,000 jobs, the number appears to be ridiculously low based on the writer's own experiences with reports from American corporations going to Mexico after downsizing in the United States. According to the article, the average starting hourly wage in Mexico is 69› compared to an average hourly wage in similar plants in the United States of $15 or even the minimum wage of $4.35.
Two contradictory schools of thought have developed in America over the last 25 years. One school of thought continues to argue for free trade, globalization, NAFTA, GATT and the World Trade Organization, while the opposing school of thought cites a decline in real wages, downsizing by corporations, greed, elimination of manufacturing jobs and the eventual extinction of the middle class. With a disappearing middle class there will be a widening gap between two separate distinctive societies (the very rich and the very poor). What complicates the debate is a political process that has been completely polarized due to inherent differences in political philosophy.
In today's political arena, ideas are no longer analyzed but destroyed, along with its messenger. These politicians and statesmen who warned of the dangers of NAFTA, GATT and the loss of American jobs have been accused of backward thinking and put in the historical position of advocating a Hawley-Smoot manifest picture going back to the Great Depression. Republicans and Democrats alike often respond by killing the message with the messenger.
The 1996 presidential campaign never again revisited or brought to light the argument of how contemporary trade policies affect the American worker. Furthermore, with political contributions coming from abroad by the millions, both parties seem to view any discourse on the subject pure sophistry.
The nation is not only losing jobs because of "free trade policies" which certainly do not result in a level playing field but also lose the prospective economic dividends which come from innovation and entrepreneurship. Helene Cooper, a staff reporter for The Wall Street Journal stated that: "for the first time U.S. defense related subcontractors can quantify how much money they are losing when foreign governments demand trade concessions and technology transfers in exchange for contracts." The United States Department of Commerce reported: "U.S. defense contractors have entered into 49 offset transactions valued at $2 billion dollars."12
In May of 1996, The Wall Street Journal brought attention to the fact that dozens of deals had been completed involving billions of dollars in technological transfer to foreign manufacturers. It was reported that McDonald Douglas and Lockheed Martin Corporation had allegedly been engaged in transfer deals with foreign entities. These companies, and businesses like them, built F-16 and F-15 fighters for the Air Force and the Navy. Importantly, the research and development for these aircraft has been paid for by U.S. taxpayers. Incomprehensible as it may seem, U.S. proprietary technologies possibly are now being used to develop a new aerospace industry in foreign countries, competing directly with American corporations and destroying many of our remaining aerospace jobs. What has the United States Department of Commerce determined the long term effect to be on the aviation industry? Have they even considered it? Never mind the moral dilemma which will faced when U.S. service personnel encounter our own advanced technologies in armed conflict. What is the motivation for America's transnational corporations and corporate executives to sell proprietary American technology? The United States Department of Commerce apparently condones the aforementioned policy, according to Ms. Cooper.
In the coming decade we will enter a new millennium and important economic, political and philosophical decisions will have to be made affecting the direction this nation will travel. Trade agreements (i.e., GATT, NAFTA) have been made in concert with the government's orthodox free trade policy which appears to be operating to the disadvantage of the United States. Moreover this appears to be a recognition of the validity of statistical data indicating that the American middle class is disappearing. Yes, lower paying jobs, somewhat menial in nature in the service sector are being created, but quantity is no substitute for quality. With the average weekly earnings rate falling by 19% over the last twenty five years, trade deficits approaching $2 trillion dollars and domestic manufacturing employment dropping sharply; it appears that the United States Congress is abdicating our sovereign rights on the altar of "free trade."
As we approach this new century and before "two roads diverge in a yellow wood" it is time to evaluate our future plans regarding trade, jobs and corporate policy by constituting a bipartisan commission. If in fact free trade, as defined by contemporary standards, is damaging the American workers, should the country know the truth? Economists like Ravi Batra have unequivocally stated
Mr. Batra clearly blames the shrinking middle class squarely on the shoulders of free trade. The whole idea behind free trade is the creation of quality jobs, and that simply hasn't happened when a comparative analysis is done. More disturbing is that any disagreement launched at free trade brings on the economic spin masters who attempt to distort the issues and destroy the messenger. Moreover, if in fact free trade is diminishing the middle class and jobs being created are just above the poverty line, what are the societal implications? Hypothetically, what if American corporations become fond of exploiting cheap labor worldwide? Would the next step be domestically? Many believe this is already happening and to some degree statistical data agrees. The corporate response will be rather predictable . . . it will go something like this: "As a corporation we can no longer compete successfully in a global economy when domestic wages are 30-60% an hour higher." The Free Trade Economist (a powerful special interest group) and companies will contrive the argument by postulating and clearly demonstrating how through free trade the global standard of living is rising, in fact they are (as Adam Smith "Invisible Hand" states) actually humanitarian in their efforts.
American Corporations are entitled to make billions in profits for shareholders, but if capital is going overseas for the building of new facilities, and jobs are being created for foreign workers, while the American middle is shrinking, we have a serious national problem. Up to this time there is a scarcity of reliable positive data showing that America will gain in jobs by NAFTA and GATT. Free trade as it exists is of the sort that leaves American producers operating on an unlevel playing field.
What are the real ramifications of free trade and what sector of society is truly the winner? What is the future of small business when multi nationals have all the advantages economically? This is not a contest between political philosophies, but a pragmatic decision about the future. Let's NOT continue to posture, spin, and destroy; for once let's examine the issues. Economists are constantly discredited for theories that crumbled in the face of reality. To go down a path led by dogmatism with individuals that have no accountability for their decisions is a prescription for disaster.
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