Working In These Times
Fewer Workers, Bigger Profits—and Endless Recession?
A security guard stands outside the newly-inaugurated Harley-Davidson dealership in New Delhi, India, on July 14, 2010. The iconic motorbike maker is revving up to go full throttle on India's famously potholed roads. (Photo by MANAN VATSYAYANA/AFP/Getty Images)
Motorcycle-maker Harley-Davidson is revving up its engines, nearly tripling last year's profits in the second quarter by hauling in $71 million.
This follows first-quarter profits of $68.7 million. But Harley is still roaring toward a head-on collision with the workers in its hometown of Milwaukee, where the company has been a beloved symbol of the city's gritty blue-collar image and pride in craftsmanship. Harley is still demanding $54 million worth of wage and benefit cuts, along with changes in work rules, from the United Steelworkers within the next 60 days.
Unless Harley gets the concessions before the current contract expires in April 2012, it has announced that it will zoom off to a new location with at least 1,400 jobs. Harley, like many other U.S. firms, is managing to extract bigger profits despite slow, sometimes declining sales and shrinking workforces, as the New York Times reported:
This seeming contradiction — falling sales and rising profits — is one reason the mood on Wall Street is so much more buoyant than in households, where pessimism runs deep and joblessness shows few signs of easing.
Many companies are focusing on cost-cutting to keep profits growing, but the benefits are mostly going to shareholders instead of the broader economy, as management conserves cash rather than bolstering hiring and production.
Clearly, bigger profits are doing nothing to promote an economic recovery. CEOs have little motivation to invest in new machinery and hire more people as spending power continues to lag badly—due precisely to the widespread wage-slashing and job cutting by other corporations doing the very same thing.
FORD NOW PRODUCING 62% OUTSIDE U.S.
The persistence of high unemployment—widely predicted to extend for as long as another four years or even longer—gives CEOs enormous leverage over workers. Even when profits are roaring back, as at Harley, U.S. corporations face no obstacles to relocating production in low-wage southern states or repressive nations like China or Mexico if workers refuse to concede to their demands.
Ford is cited by the Times as another firm that has managed to make bigger profits with lower sales and fewer workers:
At Ford, revenue in its North American operations is down by $20 billion since 2005, but instead of a loss like it had that year, the unit is expected to earn more than $5 billion in 2010. In large part, that is because Ford has shrunk its North American work force by nearly 50 percent over the last five years.
Somehow the Times' neglected to mention that 62% of Ford's production now takes place outside the United States. More generally, the environment of long-term, prolonged joblessness has created an environment where maximum production is squeezed from the fewest workers possible, the Times stated:
Because of high unemployment, management is using its leverage to get more hours out of workers,” said Robert C. Pozen, a senior lecturer at Harvard Business School and the former president of Fidelity Investments. “What’s worrisome is that American business has gotten used to being a lot leaner, and it could take a while before they start hiring again.”
Corporate America's no-hiring mode continues a long-term trend, as job growth in the U.S. over the last decade has been under 1% compared with gains in of 22% to 38% every decade since 1940.
While corporations individually have discovered how to profit temporarily from vast reductions in their workforces and the biggest wage-slashing spree since the Great Depression, their strategies offer no way out of the Great Recession. As the Times noted, the increasingly leaner and meaner workplace has a downside:
The problem is that companies are not investing those earnings, instead letting cash pile up to levels not reached in nearly half a century.
“As long as corporations are reinvesting, the economy can grow,” said Ethan Harris, chief economist at Bank of America Merrill Lynch.
“But if they’re taking those profits and saving them, rather than buying new equipment, it hurts overall growth. The longer this goes on, the more you worry about income being diverted to a sector that’s not spending.”
The current direction of Corporate America not only prolongs the
recession. It also re-distributes wealth upward—thereby taking away the very spending power from working families that is needed to break out of the recessionary cycle.
At a moment when the richest 1% already hauls in 23.5% of all annual income in the United States, there is little likelihood that the super-rich will be igniting an economic recovery with even more cash on their hands. They are much more likely to simply add to their already-vast savings:
“There’s no question that there is an income shift going on in the economy,” Mr. Harris added. “Companies are squeezing their labor costs to build profits.” …
In fact, while wages and salaries have barely budged from recession lows, profits have staged a vigorous recovery, jumping 40 percent between late 2008 and the first quarter of 2010.
MORE MONEY FOR RICH DOESN'T CREATE RECOVERY
Despite all the evidence that more money for the rich does not promote economic recovery, that is precisely the "remedy" being prescribed by the Republicans in Congress.
For example, Congressman Paul Ryan (R-Wis.), who represents a district with more than 30,000 jobless living in hollowed-out factory towns like Racine and Janesville, is busy promoting an extension of the Bush tax cuts for the super-rich and an end to all federal stimulus programs, as he
argued on Hardball last night.
By resisting any further economic activity by the government to jump-start the economy, Ryan and Co. hope that they are setting up Obama and the Democrats to take the blame for the seemingly endless misery caused by the recession.
By now, it should be obvious that the Republican strategy amounts to economic sabotage that will victimize society's most vulnerable citizens. Ryan will likely emerge unscathed in November, as he is sitting on $2.2 million in campaign cash, although he faces a feisty but under-funded Democratic opponent in John Heckenlively, one of my successors at the Racine Labor newspaper.
But it remains to be seen if other Republcians can get away with an economic plan that means even more prolonged agony for the jobless and under-employed.
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Comments
This has been exactly what I’ve seen since one of my local clients began “off-shoring” manufacturing in the mid 1980s.
CEOs have been boosting the bottom line with employee dumping and options grabbing while the average worker is saddled with more work and less pay.
Congress has passed nice sounding, but worthless (to workers) legislation, like the 2004 American Jobs Creation Act — to aid the biggest campaign donors — corporations and unions.
At least part of the problem is in the outrageous benefits which were given to union workers since long before that.
Read “Rivethead”, the story of padded union jobs and cushy extras which Detroit amassed from managers like Roger Smith who gave in rather than risk a drop in his own precious share prices.
Now we have unfunded government pensions choking cities, states and federal budgets. Harley workers can either give back some of these super benefits or lose it all to cheap labor countries like the rest of us already have.
First of all, whattheheck, I agree that, “CEOs have been boosting the bottom line with employee dumping and options grabbing while the average worker is saddled with more work and less pay.”
However, I disagree that, “At least part of the problem is in the outrageous benefits which were given to union workers since long before that.”
Since when is a middle-class wage and a secure retirement outrageous? Workers didn’t price themselves out of the job market, as you alluded to earlier the bottom fell out in the 80s when corporations started closing American shops and relocating first to Japan and East Asia, then to Mexico, Central and South America and later China.
How could Americans compete with a dollar per day, many times lower still?
Your mistake is that you assume these same corporations would stay only if they could cut their worker’s pay and benefits. I totally disagree. Many of these corporations have long-term business plans that implement off-shoring and outsourcing strategies. There is now an entire consulting industry that constructs feasibility studies and business plans solely to encourage companies to off-shore production—many of these consulting firms are actually paid by or in some cases agents of foreign governments that want these very same companies to off-shore to their country.
Also, a long time ago our country’s elites decided that manufacturing jobs were dinosaur occupations and high-finance would replace it and create a white-collar revolution to make us all rich and prosperous. Of course, this has proven to be a failing model for many communities including entire states like Michigan, Ohio, Indiana, Illinois, and Pennsylvania.
The only reason, in my humble opinion, we still have any capacity whatsoever to produce automobiles is because the UAW, IAM, USW through their PR strategies struck a cord with our nationalistic inclinations that say we should make this stuff here in America—same with Harley! Otherwise, Harley would have packed up and left years ago for Mexico or wherever they’re threatening to go.
Of course, the US auto industry has went around our nationalism for manufacturing by slow trickle to other countries. First by simply producing parts outside the country, then entire engines and transmissions, and now some produce entire cars in Mexico and Canada especially.
So again, I must agree with you first premise and totally disagree with your second.
Dear Gus and Whattheheck:
1) ROLE OF LABOR IN CRISIS: Whattheheck, I think you have very accurate perceptions of how corporations have abandoned US communities and America itself, leaving behind burned-out hollow shells. That has certainly been the case in all the Wisconsin cities I have studied and written about.
However, when you blame union campaign contributions for shaping federal policy, keep in mind two important facts:
1) Corporations spend about 15 times as much on campaign donations (political action donations are a small part of the picture; donations mainly come in the form of individual contributions by top executives)
2) Even Democratic administrations are less influenced by labor than a combination of
a) the belief that what is good for Corporate America is good for America itself, as exemplified by Democrat Bill Clinton ramming through the job-destroying North American Free Trade Agreement and
b) Campaign contributions by health insurers and drug companies that ensured that OBama’s “healthcare reform” would retain parasitic, bloated, and useless insurance bureaucracies running US healthcare.
Similarly, Wall Street reform was severely weakened and distorted by massive contributions and lobbying campaigns by the financial industry.
Finally, as for alleged “excessive” union benefits, the kind of health coverage and pensions afforded only autoworkers and a few other major groups of unionized workers are standard in Western Europe and Canada for all workers (although at a much lower price; hourly labor costs in Canada have been $4 an hour less than the US simply because healthcare coverage is less expensive (and better) without having to feed the huge for-profit insurance bureaucracy.
GUS: I totally agree with you in your critique of Whattheheck’s comment about “outrageous” worker pay and benefits driving corporations out of the US.
First, in fairness to Whattheheck, while apparently unfamiliar with what union members actually earn, he has seen—as we have—all the misleading TV “news” reports claiming that autoworkers were making $73 an hour, and similar instances of journalistic malpractice in service of corporate power.
Second, Whattheheck, the system of corporate globalization is essentially one big global plantation where US corporations are free to seek out the lowest possible wages, imposed by highly-repressive governments like those in Mexico and China.
There is no way that US workers can compete against wages of 40 cents an hour in China or 75 cents to $2 in Mexico.
One union leader at Briggs and Stratton related the union’s long history of wage concessions that continued despite the corporation moving more and more jobs to the US South (where union membership makes you a management target) and Mexico. The lesson he drew from his experience speaks volumes: “You can never give enough in concessions.”
Indeed, US workers’ real wages have been stagnant since 1973 and actually falling since 2007.
The problem is not worker wages and benefits but Corporate America’s unrestrained ruthlessness and rootlessness, always willing to ignore the hard work and sacrifices of those who brought them to prosperity and always in search of ever-greater record profits.
(By the way, many of the same points I made were also stated the next day by Robert Reich, “The Great Decoupling of Corporate Profits from Jobs” at
robertreich.org/.../the-great-decoupling-of-corporate-profits-from-job. I’m not suggesting that the brilliant Prof. Reich drew from my ideas, merely that he made very similar points and pulled in additional evfdence.)
Thanks to both of you, Whattheheck and Gus for contributing your experiences and perspectives. Best, Roger