Debunking another big conservative lie about the economy
by David Atkins
One of the lines you’ll frequently hear used to justify stagnating wages and austerity movements in the U.S. (and this goes for other industrialized nations, too) is that American workers “aren’t competitive” on the global market. The argument seems somewhat persuasive at first: after all, it’s hard to expect a company to hire an American worker at ten times the pay of a Chinese worker when the Chinese worker will work longer hours. Even if the Chinese work is only 75% the quality of the American worker, that’s still probably a good business decision for the corporation. And hey, in tough economic times with global competition from companies overseas bringing low-cost goods into America, the only way to compete is by offshoring jobs and lowering American wages, right? Everybody has to cut back now, because we’re not in Henry Ford’s America. Even American corporations are making large amounts, even a majority of their sales in overseas markets. So it’s not as if paying Americans decent wages is even terribly helpful to their consumer business.
So the line goes. And thus, policy makers have tried to paper over and compensate for that “reality” by expanding credit, keeping overseas goods cheap, and inflating asset bubbles to disguise the supposedly inevitable downward pressure on wages.
Except that there’s one little wrinkle in that tidy little argument: CEO pay. As the AFL-CIO notes:
The ratio of CEO-to-worker pay between CEOs of the S&P 500 Index companies and U.S. workers widened to 380 times in 2011 from 343 times in 2010. Back in 1980, the average large company CEO only received 42 times the average worker’s pay.
CEOs supposedly deserve all this money for increasing shareholder value. However, while the average CEO pay increased 13.9 percent at S&P 500 Index companies in 2011, the S&P 500 Index ended the year at the same level as it started.
This double-digit increase in average CEO pay for the second consecutive year shows just how disconnected the top 1 percent is from the 99 percent. In 2011, average wages increased just 2.8 percent and average worker pay totaled $34,053.
While not all of these CEOs are of American companies, a great many of them are. And it hasn’t mattered. If the argument about competitive wages and tight bottom lines for American companies were true, then the top of the pay scale should see some tightening as well. Sure, it’s not quite as easy to outsource a CEO as it is to outsource an assembly line worker, but it’s not that much more difficult. If competition is really that tight, then CEOs and other executives should feel the pinch as well in a global competitive environment.
And yet they don’t. American corporations are still immensely profitable. In fact, American companies are are racking up the biggest profits in history, and it’s mostly coming on the backs of workers.
It’s certainly true that globalization and market forces have enabled corporations and their executives to maximize profits by reducing American standards of living. But it’s not an inevitable consequence of competition to help American companies stay competitive. It’s just being skimmed off the top for the richest 1%, and for the benefit of the top 1/5th of shareholder Americans who have any significant stock investments.
In other words, the line being fed to American workers about why their wages are stagnant is just that: a line. A lie that pretends that what globalization has allowed companies to do to their workers is something that competitive forces have required them to do, when in fact the benefits have simply accrued to the richest Americans.
And that, ultimately, is what the economic argument in this country is about (when it isn’t about spending priorities and racial codes.) We can either choose to be a society that doesn’t care that the old bond because executive and employee has been destroyed, and that doesn’t care if American workers remain able to afford a decent standard of living. We can simply allow the forces to take their course, and let every man fend for himself.
Or we can choose to say “no.” One way of saying no would be to retreat and fight against globalization itself. Some efforts on that front are appropriate, but a lot of them are not. There’s no need to go out of one’s way to sign free trade deals that are an affront to the American worker, and we should incentivize companies to keep their jobs here at home. But attempting to stop globalization itself is a mostly pointless endeavor.
And that is why progressive taxation is so important. If globalization so easily enables increases in income inequality, then it’s extremely important that we as a nation claw some of those ill-earned gains back from the wealthy and spend it to rebuild the middle class.
We may not live in Henry Ford’s American anymore. Modern executives may be able to rake in the dough without paying their workers. But that doesn’t mean we have to live with that idea and do nothing about it.
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