Monday, June 20, 2011

The Great Recession and Corporate Boldness: Why no American company will sacrifice profit for employees

Robert Samuelson comes so close today to understanding the paradox that is the modern economy(Emphasis mine):

So it’s a Catch-22: You can’t get hired unless you have experience; but you can’t get experience unless you’re hired. With technology changing rapidly, workers need to know more, even as their skills-support systems weaken. There is no instant cure for today’s job mismatch, but it might ease if America’s largest companies were a little bolder. Surely many of them — enjoying strong profits — could make a small gamble that, by providing more training for workers, they might actually do themselves and the country some good.
Yet, like every good "The Free Market Will Solve all ills" fiscal conservative, he fails to take in two important truths. First, private companies have NO responsibility to do the country any good, especially if it conflicts with their fiduciary responsibility to turn a profit for their owners. Quite the contrary, as we saw in the 2000's, companies need and want to maximize profits in the short term no matter the long-term sector damage. That way, the bosses can justify their big bonuses, which Ezra Klein points out are derived from part of our normal human psychology:

Study after study shows that people would prefer a medium-sized house in a neighborhood of small houses to a big house in a neighborhood of much bigger houses. What people really want isn't to have a big house, in other words, but to have a bigger house than their peers. Economists call products driven by this sort of status competition "positional goods." The less-technical term for this sort of behavior is "keeping up with the Joneses," and we all do it.

When you're talking about changes in CEO pay, you're not talking about changes in the money CEOs use to make ends meet. You're talking about changes in a compensation package that has long since become totally abstract. Making $50 million is nicer than making $40 million, but the things it's buying, and the things it's saying about you, are, at that point, positional: it's a display of worth, not the way you put food on the table. People sometimes ask what CEOs need with all this money. The answer is they don't need it. But they need to not be making less money than other CEOs. If they are making less, then what does that say about them?

Thus, nothing in these companies structure or economic function drives them to make the nation better by improving employment through training, hiring or anything else.

The second point Mr. Samuelson misses is that one key function of government is to overcome this mismatch between what a business needs to do to profit, and what society needs businesses to do to keep the economy flowing. One of the reason we have massive systems of public education (from pre-K to Graduate School through community colleges) is to train a workforce that can evolve to the needs of the changing economy. One of the reasons we have the Small Business Administration, and environmental regulations, and laws requiring the protection of jobs for military reservists is that history has shown that if companies are left truly unregulated, they will do things that physically harm their workers and our environment, and financially harm just about everyone, all in the name of profits.

So while I agree that it would be nice if those companies were a "little bit bolder." But they won't be, and nothing in our economy right now incentivizes them to be. And against that backdrop many conservatives, Mr. Samuelson included, want to continue to cut and eliminate those government functions that could actually remedy this situation.


This editorial in the Wall Street Journal emphasizes my point - Boeing wants to move plants, presumably to save costs. But as the writer notes, it sends a signal that the kind of complicated machining and engineering needed to keep our aviation industry ahead of the pack is not highly economically valued.

Most depressing of all, Boeing's move would send a market signal to those considering a career in engineering or high-skilled manufacturing. It is a message that corporate America has delivered over and over: Don't go to engineering school, don't bother with fancy apprenticeships, don't invest in skills. No rational person wants to take on college or even community college debt to come out and work on the Dreamliner —which should be the country's finest product—for a miserable $14 an hour. If a single story in the news can sum up the reasons for America's global decline, it's the decision to build a Dreamliner that will gut the American dream.

As long as American companies are willing to undercut their own workforces in pursuit of ever greater profits, Mr. Samuelson's ideal will never be considered, much less fulfilled.

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