US Corporations Hoarding Trillions, Part Two

From www.mcgeepost.com .Copyright © 2012 Michael H. McGee. All rights reserved. Please feel free to share or re-post all or part non-commercially, hopefully with attribution.

In the first part of The Swedish Disease” we looked at the huge drag on the American economy created by the almost two trillion dollars of excess assets hoarded by US corporations. The Swedish Disease is one of the reasons the economy of the United States lacks vitality and is slumbering in a stagnant cesspool of miserably slow growth and stubborn unemployment. Yet there are not many ways for the government to dislodge this stagnation. Corporate Shareholders and Boards of Directors need to provide the stimulus to reverse the stagnation of the corporations for which they have a fiduciary duty. The government can assist with wise tax policies and incentives, yet at the end of the day those with the money have to decide to spend it differently.

What incentives to the owners of American corporations today will be sufficient to convince them to release their excess cash into the rushing river of national productivity and prosperity? Their doing so is of course not the whole cure for our moribund economy, yet it is one major part of the solution.

Let’s begin by looking at the philosophy of one of the greatest entrepreneurs of the twentieth century, Henry Ford. In 1914 Ford began offering a $5 per day wage, which more than doubled the rate of most of his workers. The announcement came in the middle of what was considered to be an industrial depression in the United States. The move proved extremely profitable; instead of the constant turnover of employees which most companies experienced, the best mechanics in Detroit flocked to Ford, bringing their human capital and expertise, raising productivity, and lowering training costs. (Much of the detail here comes from Wikipedia, although the stories about Henry Ford are quite well known.)

During this same period Ford set a new, reduced workweek of six 8-hour days, giving a 48-hour week, later reducing it to five 8-hour days, giving a 40-hour week. So, Henry Ford paid his employees more than the prevailing wage rate for fewer hours of work. Competitors were forced to raise wages or lose their best workers. Ford’s policy was also intended to give his employees enough income so they could afford the cars they were producing.

At the same time Henry Ford made it a part of his company credo to produce his product at the lowest overall cost, mostly by standardizing parts and increasing productivity. Another part of Ford’s philosophy was one of economic independence for the United States. His River Rouge Plant became the world’s largest industrial complex, pursuing vertical integration to such an extent that it could produce its own steel. Ford’s goal was to produce a vehicle from scratch without reliance on foreign trade.

Henry Ford explained his payroll policy as “profit-sharing” rather than wages. And even after raising wages beyond the norm at the time (or as he might say, sharing profits with all his employees) he became one of the wealthiest men in America. Bill Gates did much the same thing during the early years of Microsoft, and to some extent Microsoft continues to do so today. Many people who have been with the company for years are multi-millionaires, and are the best at what they do, and are intensely loyal to the company. And even after many years of paying the highest wages, and distributing the most prolific profit-sharing, and conducting most of his research and manufacturing in the United States, Gates is one of the wealthiest men in the world.

In the present day, most of the American corporations that have built up great troves of excess cash have done so by paying the lowest market wages to their employees, selling their products and services at the highest prices, and importing much of their manufactured inventory and out-sourcing services. Is it any wonder that few US consumers can buy the manufactured products or services of American corporations? These corporations seem to have failed to understand what people such as Ford and Gates have taken for granted: their customers generally are employed persons, and these customers must be well-paid if they are to buy the products and services of corporations.

Further, low-paid employees are generally not very loyal, and not inclined to increase their productivity, are not inclined to be the best that they can be, and are willing to change jobs at the drop of a hat.

Ford and Gates instinctively understood that a corporation is made up entirely of its employees and contractors, and without the best pay and incentives these employees and contractors are not going to raise up the corporation to its highest purpose. These men and women will slog along on the job, getting by from one day to the next. Meanwhile, the corporation slogs along from one day to the next by letting its excess cash money managers move funds around in low-risk securities or blithely drop funds into risky and uncertain ventures, or rob the company by siphoning off small amounts of the excess cash. There is a profound lesson to be learned from the experiences of the great free-market entrepreneurs such as Henry Ford and Bill Gates.

Which is going to be the first American corporation to drop the pretense of holding a valuable treasure trove, and begin to invest their excess cash in productive activity inside the United States? Which corporate leaders are going to have the courage to use some of their hoarded cash to raise the salaries and wages of their employees from top to bottom, whether calling it pay increases or bonuses or profit-sharing? These increases will give the economy a boost and give employees the means to buy the products and services of the corporations.

Which corporate leaders are going to be the first to build new factories and service facilities, and upgrade existing facilities, at a time when it is not certain that the products and services being produced will be purchased? Remember, Henry Ford did all these things starting in 1914, when the nation was in the middle of what was considered to be an industrial depression in the United States. He even continued to act during the Great Depression, and came out a second time at the top of the heap.

When are American corporations going to realize that shifting many of their activities out of the United States to low-wage nations is undermining the US customer base which feeds their profit and growth? People in the US work, or want to work, at jobs, and yet cannot afford to buy the company’s products or services due to their reduced purchasing power. This downward death spiral is combined with the lack of market economic motivations to raise wages, and therefore working people cannot buy what is put on the shelves and in the showrooms for sale.

When I was a young man growing up in the small southern town of Lexington, North Carolina, there were a hundred or more furniture factories within a triangle area of sixty miles around Lexington. I understand that today there is only one factory still in operation. The remaining production of furniture has been moved over time to low-wage nations such as China. The Lexington-High Point-Hickory area is still a national furniture center, though. The area is loaded with distributors and wholesalers who spend their time hawking imported furniture. There is a lot more profit and wealth to be made in the ownership of manufacturing, than in wholesaling and distribution. So therefore the area has become a vast wasting desert of men and women who are breaking their backs to make a decent income selling the products of low-wage countries. Wealth production and decent profits have long departed the area.

Let’s look at Wal-Mart. This giant corporation is sucking into the country billions of dollars a week of products made in low-wage countries. This enables them to continue to offer the lowest prices for everything from soup to nuts. The problem comes when we begin to realize that there are so many customers for Wal-Mart mostly because these customers are either unemployed or working at the low-wage jobs which due to market pressures don’t lend themselves to earning any more money for their efforts.

I’m picking on Wal-Mart because they are the biggest, not because they are the worst. I bought my last television there, assembled in Mexico from parts made in third-world countries. The price was fantastic.

As a matter of fact, with the downward pressures on wages, or perhaps more accurately, the lack of upward pressures, over time the United States is almost guaranteed to creep into a process where our work force begins to resemble the low-wage workforces of other countries. There is in progress in the United States a slow and agonizing transition whereby our country will over time become a “third-world country.” It may take twenty years or it may take fifty years, yet if things continue as they are it will happen, guaranteed.

Since we are a country lovingly dedicated to private enterprise and capitalism, it must be made clear that only our corporations and other private enterprises can make the significant capital infusions to stave off the undermining of the American Dream and its replacement with a dusty world of people living in shacks, struggling with broken down infrastructure, riding on bicycles because they can’t afford cars, tapping away in Internet cafes because they can’t afford computers. I lived in third-world countries for a total of three years, so I know what it’s like on the other side of the economic curtain. The curtain only needs to be torn once for us to join our less fortunate brethren. It doesn’t take much effort to tear the curtain.

When I lived in the third world my income would have been considered modest by the standards of the United States. Yet during all this time I was one of the top one percent in the areas where I lived. Therefore I was able to observe the pits of small despairs without actually participating in the general way of life in these countries.

Anyone who thinks that we in the United States can retain our advanced way of life without the necessity for providing good-paying work for our people is deluded. To paraphrase Nobel Prize winner Gabriel Garcia Marquez, we are already living the dream of a past whose annihilation has not taken place because it is still in a process of annihilation, consuming itself from within, ending at every moment but never ending its ending.

Our people are in the middle stages of becoming servants to inactivity and sloth, of not really caring whether they work or do their best, because there is no decent reward for the work which is available. All around the country people are becoming ever more accustomed to sitting on a porch in a tilted-back chair, dreaming of times of prosperity that used to be and which probably will be no more. They are becoming adjusted to low wages and finding the best ways to get through the day with as little effort as possible and with constant trips to Wal-Mart. The coming annihilation of hope and effort will increase exponentially unless private enterprise once again finds ways to create hope in the American dream and to imbue our people with pride and a desire to be the best they can be.

I focus so hard on the role of private enterprise for the simple reason that we are a capitalist country where the hopes and dreams of our people rest on the shoulders of entrepreneurs as well as on the owners and managers of mature industries. I am a fervent believer in private enterprise and the minimum amount of regulation of enterprises by government.

Is there anyone out there who will have the courage to begin the process of investing in our country before there is any certainty that the investment will pay off? Where are the Henry Fords and the Bill Gates’ of today? Where are the managing boards of mature industries and financial enterprises that are willing to lay their money down, to retain and increase the greatness of America at the same time as they restore their stockholders’ bottom-line profitability?

And make no mistake: if private enterprise isn’t up to the job, our country will loudly and ultimately fail. The notion of the government as a savior is the setting up of a false god. The participation of the government is a necessary, but not a sufficient, element in the restoration of the United States. In the end it’s up to private enterprise to make the decisions which will pull us out of the ennui of which we are in danger of falling.