PrintMarch 4, 2010
If the Workers Can't Buy, Their Bosses Can't Sell
It is an axiom of economics that in order for businesses to be competitive and profitable, they must always strive to be labor-lean. They must shed as many workers as possible, as quickly as possible, for as long as possible.
"As long as possible" can mean forever. In the old days, the preferred method of American "downsizing" and "outsourcing" was to send jobs to lower-wage locations within the United States. Nowadays, the jobs are sent to even lower-wage places like Taiwan, Singapore, South Korea, Mexico, Brazil, China, Indonesia, Malaysia, the Philippines, and Bangladesh.
America's citizens consume two-thirds of our Gross National Product. In order for them to do that, they must have money to buy food, raise their children, and keep a roof over their heads. And in order for them to do those things, they have to have well-paying jobs. Without them, consumers buy only necessities, not the country's other goods and services.
Despite its Puritan origins and its Protestant ethic, the United States is a consumer-driven society. We Americans fall from economic grace not when we overproduce, but when we underconsume. Without steady and robust consumption, our recessions linger, our governments don't receive the tax revenue they depend on, and our businesses cannot sustain their profitability.
Who takes up the slack in consumption when America's workers are unemployed, underemployed, or forced into early retirement? Certainly not their foreign counterparts. Foreigners may make things for America -- and they make them well -- but they usually don't earn enough money to buy American goods and services.
The United States cannot remain great and strong if most of its workers push paper rather than make things. The Chinese, who are now the workmen to the world, are a case in point. Not only do they own much of our debt, but they also produce most of the things we Americans purchase with that debt.
"Made in China" has become so much a part of the American scene that if the Chinese ever warred with us again -- they fought us directly in Korea and indirectly in Vietnam -- we would probably have to arrange a truce and a neutral transshipment point every few weeks so that they could provide us with the uniforms and boots our soldiers need to fight them.
If our workers have no work, they will eventually end up either on the public's dole or in the public's prisons. The economic and social costs of that eventuality will outstrip any savings generated by domestic downsizing and overseas outsourcing.
In capitalist societies, all wealth is produced by and in the private sector. By paying taxes, this group funds employment in the public sector. So if Washington really wants to grow more jobs and end the current recession, one of the things it should do is grant tax concessions for each job that our private businesses repatriate home.
In 1911, Frederick Taylor, a wealthy metallurgist and the father of scientific management, wrote that when they "push shoulder to shoulder in the same direction, ... there is ample room for a large increase in wages for the workmen and an equally great increase in profits for the manufacturer."
Three years later, Henry Ford, the paterfamilias of the American automobile industry, lowered the hours of his blue-collar workers from nine to eight and more than doubled their minimum wage from $2.34 to $5 a day. Both his peers and his stockholders attacked him for his entrepreneurial treason. Despite legal and other challenges, he stood firm. And in 1916, he told the Detroit News that his aims were to enable "a large number of people to buy and enjoy the use of a car" and to provide "a larger number of men employment at good wages."
A hundred years ago, Taylor and Ford understood that for American businesses to be able to sell, American workers must be able to buy. They knew instinctively that American employers can prosper only when American employees have jobs.
The time has come time for our present politicians and entrepreneurs to learn and apply this basic truth.
Edward Bernard Glick is Professor Emeritus of Political Science, Temple University in Philadelphia.
