Business Is Bad for Business

For forty-years American management has leveraged capital mobility to demand concessions from organized labor. Holders of sovereign debt do the same to demand reductions in public spending and shrinking the public sector. This has severely strained liberals’ willingness to stimulate private investment through taxes and transfers. Meanwhile, corporate boards of directors continue to refuse to invest on any but their own terms. Loosening their grip on investment decisions is the only way through this impasse.

Why aren't American companies spending money?

Donald Trump’s impressively rapid conversion from ersatz economic nationalist to “ordinary” business-friendly Republican is reassuring the business world. His most recent moves to sideline Stephen K. Bannon and elevate Goldman Sachs alumnus Gary Cohn are a clear signal that he plans to govern in the tradition of Reaganite orthodoxy, where rollbacks on regulations take precedence over more direct protections for American manufacturing. This shift has a way of disarming what had hitherto been one of the main liberal critiques of Trump: that economic nationalism is bad for business.

But Trump’s pivot is also obscuring the genuine sources of anger that helped propel him to office. People know now, if they didn’t before, that capital mobility and disinvestment have had a hugely deleterious impact on generations of communities, many members of which voted for Trump. The same process looks set to continue. But when Trump insists these policies will boost employment and that the “wellbeing of the American worker is my North Star,” as he did in March, it seems as if few opponents know how to respond coherently. Business is and has been flush, but none of its money has been going back into investment. From 2004 to 2015, nearly $6.9 trillion of corporate profits went into stock buybacks. During that same period, wage growth stalled, the labor force participation rate dropped, and job growth did not keep pace with birth rates. Deregulation or capital flight, take your pick.

The political crisis that led to Trump assuming the presidency, in other words, came from a longstanding lack of control over how American business spends its money. From the perspective of workers, it matters little whether that money gets spent on dividends to shareholders or on moving plant overseas: both are detrimental. From the same angle, what has supposedly been a debate between nationalism and internationalism is in reality a pseudo-argument over which brand of bad employers to stimulate to invest. The likelihood is that the President’s emerging, more classically Republican program, will do wonders for the profit margins of both import-dependent businesses as well as export-dependent ones, while continuing the bad trend for workers in both kinds of industry.

It’s worth noting, in that regard, that the businesses enthusiastically supporting Trump’s economic nationalism are nearly all awful employers. Eyeing future cuts to the corporate tax rate and lower regulatory standards—and the costs associated with meeting them—many are looking optimistically at profits and future growth. “It’s time to ramp up investment,” the CEO of Honeywell told Fortune. In February the manufacturing lobby formed its own lobbying group, the American Made Coalition, to support Trump’s border tax plan. But the supposed ramp-up of investment is also predicated on the continued crushing of wage growth. The multinationals that support the border tax, such as Honeywell, Boeing, Raytheon, Qualcomm and General Electric, have all historically forced their workers’ unions into concessionary bargaining—where they haven’t smashed them altogether.

Boeing routinely threatens to move all production to its non-union South Carolina plant when fighting to deprive workers in its Washington of benefits and protections. General Electric cut its health insurance for 65,000 retirees in 2014 while closing dozens of plants across the country in the past decade, rather than cede a small proportion of its revenues to the United Electrical Workers. Honeywell’s bargaining strategy seems to involve locking out workers for months at a time before granting what in other industries are standard contract clauses, such as the grievance procedure workers recently won in South Bend, Indiana.

But the businessmen who opposed the President’s protectionist program, too, are ruthlessly authoritarian employers. Take retail. Walmart, the price-setter for the low-wage consumer market, is one of the leading companies against the border tax idea. The retail industry called a tax on imports a “consumer tax,” which, by reducing consumption, would reduce employment at their stores. To remind the public of this, the National Retail Federation sponsored a satirical infomercial to play during Saturday Night Live in March, selling the proposed border tax as a “job-killing formula” that would jeopardize one in four workers in the US—those associated with the retail sector.

But Walmart has notoriously eliminated entire job categories of workers who attempt to better their lot by forming unions and bargaining with the company. Amazon, Walmart’s rising competitor currently restructuring the retail sector, runs an aggressively mendacious “union avoidance” campaign for its 90,000 warehouse workers and requires them to wait for upwards of a half hour without pay for security checks before they can leave the workplace. The conditions in the warehouses have provoked German workers to repeatedly strike the company. Some have even traveled to Seattle to demand negotiations. Nearly all of the apparel brands shipping goods through these firms and pitching in money for lobbying contract with the sweatshops of Bangladesh and Cambodia. Just as with Walmart and Amazon, these jobs are offered unilaterally, to the anger of working-class communities. What does that anger look like? In 2014, Cambodian wages were so low tens of thousands of garment workers brought Phnom Penh to a halt in a strike that resulted in police killing four workers. In December, in the midst of a strike at fifty-nine apparel factories, the Bangladeshi government began arresting trade union leaders, according to the industry watchdog Clean Clothes Campaign. The workers at the factories were protesting poor safety standards following the factory death of one of their comrades, and were seeking a minimum wage of $190 a month. Since November many economic liberals, such as The Great Convergence author Richard Baldwin, or the editorial writers of the Guardian (who worried that Theresa May would “wreck capitalism”), have argued against economic nationalism essentially on the grounds that it will slow investment in this sort of business. This is not only tone-deaf but unconscionable.

This is another way of saying that those who praise or fault nationalist movements according to how they benefit or hinder private employers are missing the point. It is control over investment itself that is the root of the current political crisis. $2.4 trillion of un-repatriated profits sit outside the grasp of workers and the IRS. Companies such as GE, which routinely close plants, either sit on their cash or diversify their investments into speculative securities. They bid up the price of their own stock to raise management’s salaries, without adding machinery or providing services to the economy. Where investments in employment are made, they are in new sectors whose business model depends on sweated labor. Entrepreneurialism today means using a loan to provide an existing service at a lower cost by encouraging some group of underemployed workers to compete against some other group of more fully employed workers. Long before it became associated with Silicon Valley, the ideology of “innovation” and “disruption” was entrenched in American manufacturing and retail, at the expense of the people actually doing the work.


The reason the system of private investment has become so dysfunctional ought to be well understood: as Dean Baker wrote in December, “employment rates for prime age workers (ages 25-54) still well below their pre-recession levels” are due to “a problem of inadequate demand.” Business doesn’t have enough customers to raise sales, except by cutting costs; lenders don’t have any entrepreneurs except for the automators and the union busters. Capital accumulates, but with no outlet for investment.

This is where the government ought to come in. But during the critical period following the 2008 crisis, the Democratic Party leadership shied away from deficit spending. After the bailout program and the stimulus created massive deficits, Barack Obama had promised to curb the budget. Well before the 2010 midterm catastrophe, the President was arguing that as “families across the country are tightening their belts and making tough decisions,” it was incumbent on the federal government to “do the same.” When public sector workers in Wisconsin occupied Madison’s capitol building to defend their workplaces and the communities they sustained, the White House demurred. “A lot of states in the union are dealing with fiscal issues, big problems in their state budgets that need to be addressed,” press secretary Jay Carney said in 2011. “They need to act responsibly, tighten their belts, live within their means.”

Following the 2012 election, with a Democrat returned comfortably to the White House, the belt-tightening rhetoric no longer had any real rationale. In the Times, Paul Krugman repeatedly made the case that the government had an obligation to spend. The idea behind his argument was that entrepreneurs’ demand for savings, and lenders’ willingness to lend to them, reflect expectations of future profit. When expectations are low, savers will chose to make money off interest rather than invest in enterprises to create jobs. Business expectations can become so bleak that, as Keynes wrote, “purely monetary” responses to the business cycle—such as central bank manipulations of interest rates—are inadequate to redirect savings to employment. In such instances, only government spending can intervene to sustain consumption and improve the businesses outlook.

But the reasoning against deficit spending only makes sense if you’re worried about the sanctity of the trillions of dollars in Treasury bonds you happen to own. During the final stages of the 2016 presidential campaign, Peter Peterson and Paul Volcker warned that “neither candidate has put forward a convincing plan to restrain the growth of the national debt.” In the future, they then threatened, owners of US federal debt—such as themselves—“may not be so kind as the IOUs mount up.” This barely concealed blackmail reveals the senselessness of any talk over whether the government is stroking or strangling the state of business confidence. Like economic liberals’ concern over economic nationalism, sovereign debt alarmism misleads by taking out of politics the question of where to put our savings. For these financial managers, keeping the federal government solvent to secure bond wealth (good for firms like Peterson’s Blackstone) must come at the expense of actual investment and growth. Business itself, it turns out, is bad for business.


Deep in winter this February, workers at a chemical plant in Waterford, New York struck their employer. The workers upstate looked to Trump. “He’s going to know we’re here, and what we’re fighting is corporate greed,” a 56-year old worker, a twenty-seven-year veteran of the plant, told Politico. “I like everything he says. I just hope he does something.” Their plant was managed for decades by General Electric until 2006, when it was spun off and bought by the private equity firm Blackstone.

For forty years, American management has leveraged capital mobility to demand concessions from organized labor. Holders of sovereign debt do the same to demand reductions in public spending and shrinking the public sector. This has severely strained liberals’ willingness to stimulate private investment through taxes and transfers. Meanwhile, corporate boards of directors continue to refuse to invest on any but their own terms. Loosening their grip on investment decisions is the only way through this impasse.

At the moment, with Republican hegemony still unchallenged, little transformational work can be done. But radical demands can still be advanced—such as pushing for tuition-free public universities and single-payer healthcare—so that they can be acted on if and when the Republicans are put out of power. Above all, this will mean an embrace of a growing public sector. Unlike a budget deficit, which is impermanent, the public sector represents a stock of public capital, operated by elected officials. It can draw revenues (like a transit authority), regulate total employment levels (like the state university systems), or make its own investments (like a sovereign wealth fund). Such a robust public sector under democratically elected government is the “somewhat comprehensive socialization of investment” Keynes called for at the end of the General Theory. The left has probably already received the greatest (and perhaps the only) gift Trump can give us—the abandonment, at least in the popular consciousness, of laissez-faire. Beyond that, of course, his program has to be rigorously opposed. But what comes next depends on understanding the alternatives.

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