How Offsourcing Undermines America: Losing the Economy to Mythology
By PAUL CRAIG ROBERTS
Economic discussion in the United States is trapped in ancient ruts. Both right and left are stuck in old habitual ways of thinking. Neither shows inclination or ability to think independently of ideology. For a country beset with economic problems, this is problematic.
The ascendency of free market economics during the past quarter century has removed some constraints on corporate power. It is difficult to argue that this is a desirable result. For example, the concentration of media ownership permitted by the Clinton administration in the 1990s has destroyed the independence of the US media, thus reducing the accountability of government. Deregulation has had unintended consequences. The growth of corporate influence has facilitated the reach of special interests into universities and think tanks and turned some from pursuit of truth to “for-profit activities” that compromise the independence of studies and publications.
The left-wing, which refuses to accept that the Great Depression was caused by the Federal Reserve’s mistaken monetary policy and still blames corporate power and greed for the 1930s decade of high unemployment, is disturbed at the loosening of the leash on corporate power. Generally speaking, the left blames President Reagan for boosting corporate power by cutting taxes and for spear-heading union-busting by firing the striking air controllers.
John Kenneth Galbraith was correct that unions provided a countervailing power, one that has been removed. The left-wing is correct that corporations have grown in power and that income inequality has worsened. But the left is wrong in attributing these developments to tax cuts and dismissed air controllers.
The purpose of Reagan’s reduction in marginal tax rates was to cure stagflation and worsening trade-offs between inflation and employment that had undermined Jimmy Carter’s presidency. Reagan’s tax policy brought a record economic expansion that did not require rising rates of inflation to sustain. It is impossible to argue that the decline in inflation and home mortgage rates benefitted the rich more than others. The rich have a lot of margin in their budgets. The poor have none.
US income inequality was worsened and the unions busted by the collapse of world socialism and the rise of the high speed Internet. These two developments, which were not part of Reagan’s economic program, made it possible for corporations to substitute foreign labor for American labor in the production of goods and services for American markets.
Until the collapse of world socialism, corporations did not have access to the large pools of excess labor in China and India. Until the rise of the high speed Internet, corporations could not hire professional services supplied from distant lands. These two developments meant that highly productive and highly paid American labor could be substituted out of production functions and replaced with equally productive but much cheaper foreign labor, because large excess supplies of Asian labor suppressed Asian wages below the productivity of labor.
Industrial unions were busted by the movement of plant, equipment, and technology abroad.
The professional middle class was adversely impacted by the ability of corporations to contract for the delivery via the Internet of professional services from abroad and by the ability to import cheaper foreign workers on H-1B, L-1 and other work visas.
Jobs offshoring is dismantling the ladders of upward mobility in the US, polarizing the population into rich and poor, and, thereby, worsening the income distribution.
Americans need to understand that it is jobs offshoring, not lower tax rates, that is worsening the income distribution. Because of the million dollar cap on tax-deductible executive pay, executive incomes depend primarily on performance-related bonuses. The multi-million dollar CEO pay checks are not salaries. They are bonuses for making or exceeding profit expectations by such practices as offshoring jobs and lowering production costs. We have created an incentive system in which a few corporate executives are amazingly well paid for destroying jobs and career opportunities for Americans. The more they can worsen income inequality by offshoring American jobs, the higher they are paid.
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