Thread: Is globalization destroying consumer market?

http://www.sacbee.com/content/opinion/s ... 4397c.html

Is globalization destroying consumer market?
By Harley Shaiken and David Bonior -- Special To The Bee
Published 2:15 am PDT Sunday, October 23, 2005
Lori Wenzel lives in a nice house in a nice subdivision in Grand Blanc, Mich. She's worked hard to get there. She hired into an auto parts plant, now Delphi East, in 1977 when she was 18 years old, some 28 years ago.
Now the Delphi bankruptcy, the largest industrial meltdown in U.S. history, threatens to shatter her world and the world of her coworkers.

Delphi's skid into an economic ditch raises a fundamental question: How do U.S. firms compete in an increasingly rough-and-tumble global economy? Historically, U.S. firms have succeeded through innovation and high productivity, not low wages. Indeed, not long after Henry Ford introduced the moving assembly line for the Model T in 1913, he doubled the wage of his workers to $5 a day. Despite predictions of ruin by editorial writers and Ford's competitors, and buoyed by unprecedented efficiency, sales soared and the profits of the Ford Motor Co. jumped almost 20 percent the following year.

By the late 1940s, unions spread economy-wide Ford's idea that highly productive workers should also earn higher wages. The result was strong consumer demand, an expanding middle class and a growing economy. In short, we all benefited.

Delphi, General Motors' former parts subsidiary, won't be expanding the middle class anytime soon. The company has proposed eliminating one-third or more of its 33,000 hourly workers in the United States and slicing wages for those who remain from $27 to $10 an hour. Benefits will become an endangered species. People like Lori would go overnight from among the highest paid industrial workers in the world to scraping by near the poverty line.

In Saginaw, Mich., Delphi's proposed new pay trails Burger King's $10.60 hourly wage, turning fast food into a promotional opportunity for autoworkers.

What forces are propelling this seismic shift? A new reality underlies the global economy: Companies have found they can achieve first-world productivity and pay third-world wages in emerging economies. Delphi plants in the United States are pitted against those in Mexico and China, where labor costs are 5 percent or so of U.S. levels.

The company's 60,000 Mexican workers - one-third of its global employment - are currently working heavy overtime for which they earn between $70 and $90 a week.

Some analysts are saying the Mexican workers may be pricing themselves out of the global market - auto parts workers in China earn that in a month.

As Delphi and the United Auto Workers resume negotiations, all sides agree that a painful restructuring is necessary. There is, however, a major difference between restructuring and a unilateral demolition of what Lori Wenzel and other workers have achieved over the last 70 years.

The lowest cost producer is not necessarily the lowest wage producer. Delphi needs innovation and efficiency to compete, qualities for which its seasoned workforce is vital. They won't exactly be singing the company song after these changes, nor will the best and brightest be flocking to Delphi's plants.

Beyond the bargaining table, manufacturing firms need policies that recognize the new realities out there. Instead, the Bush administration has been myopic. As a result, companies such as Delphi are caught in a tightening vise of soaring health care costs on the one hand and an outmoded trade policy on the other.

The United States remains the only major industrial country in the world without national health insurance, putting an unreasonable burden on firms and workers. At GM, $1,500 of each vehicle's cost goes to cover health care for the company's workers. As the world's largest private provider of health care benefits, GM and its workers are now in the midst of a painful adjustment.

"It does not take a union activist to be disturbed by the prospect of Delphi workers losing benefits that they dedicated their lives to gaining by working there," the Financial Times commented. In contrast, auto parts makers in Japan and Europe are successful, even paying high wages without the added burdens of health care costs.

Likewise, U.S. trade policy is askew. The issue isn't pulling back from the global economy but rather creating incentives to compete through innovation rather than through wage slashing. Trade agreements that incorporate core labor rights ensure that workers can bargain for a fair share of what they produce. If workers in Beijing can form an independent union - if they choose - they can earn more and workers in Saginaw or Sacramento can avoid earning less. The combination increases demand for new products in both countries and lays the basis for expanded trade.

Pulverizing the wages and benefits of Delphi workers may make the company more profitable in the near term. But Wall Street as well as Main Street will be hurt in the long run because Lori, her coworkers and their counterparts across the globe can't afford to buy new Buicks. As Henry Ford understood nearly a century ago, if competition destroys the very consumer market on which manufacturers depend, business as well as workers and communities will lose.


About the writers:
Harley Shaiken is a professor at the University of California, Berkeley specializing on labor and the global economy. David Bonior is university professor of labor studies at Wayne State University in Detroit.

What forces are propelling this seismic shift? A new reality underlies the global economy: Companies have found they can achieve first-world productivity and pay third-world wages in emerging economies. Delphi plants in the United States are pitted against those in Mexico and China, where labor costs are 5 percent or so of U.S. levels.

The company's 60,000 Mexican workers - one-third of its global employment - are currently working heavy overtime for which they earn between $70 and $90 a week.

Some analysts are saying the Mexican workers may be pricing themselves out of the global market - auto parts workers in China earn that in a month.

Yep, it's "cheap labor" economics, the scourge of the modern worker in the wealthier countries.

The lowest cost producer is not necessarily the lowest wage producer. Delphi needs innovation and efficiency to compete, qualities for which its seasoned workforce is vital.

No amount of "innovation and efficiency" will prevent companies from moving jobs offshore... I mean, if the companies are able to dream up new technology here, there is currently nothing stopping the company from using the new technology offshore... So, "innovation and efficiency" are worthless for allowing U.S. workers in Delphi plants to compete against foreign workers in offshore Delphi plants.

The much-heralded economist David Ricardo pointed out that for "free trade" to work, the "factors of production" have to be immobile... But if the factors (i.e. technology, factories, etc) can be moved, then the industry just flows to wherever the labor is the cheapest (or environmental regulations the lowest, etc).

The United States remains the only major industrial country in the world without national health insurance, putting an unreasonable burden on firms and workers. At GM, $1,500 of each vehicle's cost goes to cover health care for the company's workers. As the world's largest private provider of health care benefits, GM and its workers are now in the midst of a painful adjustment.

"It does not take a union activist to be disturbed by the prospect of Delphi workers losing benefits that they dedicated their lives to gaining by working there," the Financial Times commented. In contrast, auto parts makers in Japan and Europe are successful, even paying high wages without the added burdens of health care costs.

I've noticed the corporations have no interest in national health care, even though it would lighten their burdern... I think they're hoping to go bankrupt, because then they can get rid of their retirement benefits/pensions... Then, the company can move whatever remains of U.S. factories to Asia, where the labor is the cheapest... And the executives can congratulate themselves with large bonuses.

Likewise, U.S. trade policy is askew. The issue isn't pulling back from the global economy but rather creating incentives to compete through innovation rather than through wage slashing. Trade agreements that incorporate core labor rights ensure that workers can bargain for a fair share of what they produce. If workers in Beijing can form an independent union - if they choose - they can earn more and workers in Saginaw or Sacramento can avoid earning less. The combination increases demand for new products in both countries and lays the basis for expanded trade.

There's no way we can force China to enact policies resulting in better pay for their workers... To the contrary, China has purposely been following "cheap labor" policies, in order to function as a "tractor beam" which sucks in all U.S. industry.

Furthermore, even if China did unionize, their labor would still be cheaper... In the Delphi plants in China, their total compensation, including benefits, is just $3/hr whereas workers in the U.S. were making $65/hr.

With 4 billion impoverished people in the world and with factories becoming increasingly automated, there's just no way that unions or any other gimmick for raising wages is going to stop the hemorrhaging.

Pulverizing the wages and benefits of Delphi workers may make the company more profitable in the near term. But Wall Street as well as Main Street will be hurt in the long run because Lori, her coworkers and their counterparts across the globe can't afford to buy new Buicks. As Henry Ford understood nearly a century ago, if competition destroys the very consumer market on which manufacturers depend, business as well as workers and communities will lose.

I don't think our executives (or Wall Street) think that far ahead... All they care about is next quarter's profitability... The macro-economic, long-term issues don't have any effect on whether they can justify giving themselves large bonuses for cutting costs by steadily clear-cutting their consumer market.

And our executives certainly don't care about "workers and communities."

What we need are large tariffs until we have balanced trade.

http://www.saveamericanjobs.us/sa-jd-sp ... rade.shtml

America imported products and services valued at 1.259 trillion dollars in 2003. This produced a trade deficit of 535 billion dollars. A ten-percent tariff on this would have provided the government with 126 billion dollars.

Select your favorite government program; Drugs for the Needy, Education, Social Security, Medicare, National Defense, Reducing the National Debt or Reducing Income Taxes, etc. Here are the funds.

If American purchasers choose not to buy Chinese products at the higher prices, good. BUY AMERICAN. This will put the American factories and their employees back to work.

Thom Hartmann:
http://www.albionmonitor.com/0408a/outsourcing7.html

If a company wants to hire people to answer the phone in India for two dollars an hour, fine. Let them do it -- and pay a $10/hour tariff on top of the $2/hour wage. Most will simply return to the United States for their labor, and those that don't will enhance government coffers with funds that can be used for national healthcare and education of our workforce.

Tariffs are good... Spread the word.

The reason why the MSM portrays tariffs as such a disaster is that it's really a tax on our multinational corporations, who will not be able to greatly raise prices for their products, but will have to pay the tariff.

Nearly 60% of the goods we get from China are American brand goods... Often, we're not competing with lower-cost Chinese companies... These are U.S. companies who have relocated production in order to get cheaper labor... These U.S. companies don't want to have to pay a tariff, which would lower profits, but even worse, it would force the executives to have to use a little imagination to justify their bloated salaries.

http://moneycentral.msn.com/content/P85061.asp
"... CEOs of the country's largest corporations last year were paid about 300 times the average factory worker... In Europe, in contrast, chief executive pay tops out at 30 times the average worker."

The crazy thing is you always hear how executives give themselves large pay raises, just before they declare bankruptcy or cut wages/benefits for everyone else... If the low-cost foreign competition is such a challenge, then why don't they start by cutting their own bloated salaries.

Tariffs are good... Spread the word.