Globalization and the Downsizing of the American Dream

by Kevin Danaher, co-founder of GlobalExchange.org, and Executive Director of GlobalCitizenCenter.org.

October 2007
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Just about every day we hear something about globalization. The mass media give us the impression that the impersonal forces of the "free market" are knitting together the peoples of the world into a seamless quilt. We are led to believe that things will steadily get better if we can just keep governments from meddling with the market forces that lead to more growth and efficiency.

Yet we also know that jobs are being lost to global competition. We know that the global environment is being threatened on a number of fronts, from global warming and the deterioration of the ozone layer to the extermination of species and the poisoning of the world's water supply. We see refugees and immigrants by the millions roaming the planet, in search of jobs and protection from armed conflict. We also know that inequality is getting worse: fewer and fewer large corporations own more of the world's productive resources while millions of people are unable to sustain their families. Many of us have a gut feeling that the global economy has gone awry. We would do well to trust our feelings. This booklet addresses this crucial issue: how the globalization of the economy undermines the quality of life in the United States. The decline in our standard of living can be seen in numerous areas:

1. As U.S. corporations have expanded their global reach they are better able to put the U.S. workforce in direct competition with foreign workers, thus increasing their profits while driving down our wages and general standard of living.

2. Global corporations are better able to use technology to downsize their workforces, thus creating anxiety among working people who no longer feel secure about the future of their jobs.
3. As global corporations become less dependent on any particular nation, they have less interest in supporting any government with taxes. This results in a shrinking tax base and what is referred to as a "fiscal crisis of the state" (the tendency for government expenses to outrace revenues).

4. By using the rationale of "global competition" to drive down the living standards of the majority, the corporate class has shifted more and more wealth from our pockets to theirs. This growing inequality is producing resentment and rebellion-here and abroad.

Yet all is not gloom and doom. The globalization of finance, production and trade is being followed by the globalization of grassroots democracy. Individuals and grassroots groups are gradually building an alternative society guided by social justice and environmental sustainability rather than by greed. We conclude with ways for you to get involved in this movement to construct alternatives to top-down globalization.

Do We Want Just a Market, or a Just Market?

When the U.S. came out of World War II as the dominant industrial country, it was logical that the dollar would become the global currency, that U.S.-based corporations would dominate world markets, and that the U.S. would have the strongest hand in shaping global institutions such as the World Bank and the International Monetary Fund. This dominance allowed U.S. transnational corporations to expand to gigantic proportions. Many of the Fortune 500 companies now have annual revenues larger than the gross national product of most Third World countries, and even larger than the GNP of industrial countries such as Finland, Denmark and Norway.

The global reach of large corporations has disconnected them from national needs and desires. Business Week points out that "As cross-border trade and investment flows reach new heights, big global companies are effectively making decisions with little regard to national boundaries. Though few companies are totally untethered from their home countries, the trend toward a form of 'stateless' corporation is unmistakable.

As corporations have developed their ability to tap into a huge global labor pool, they have less need for the social welfare policies of any particular nation. Global companies may want various kinds of subsidies from the government, but when it comes to government regulations that could allow the people to exert control over big business, corporate ideology preaches "free trade," deregulation and the downsizing of government. The possibility of a truly democratic government is the most serious threat to the power of large corporations-so government must be dismantled!

With a global labor pool at their disposal, transnational corporations are less dependent on any particular national workforce. The facts show that in recent decades U.S. corporations have been cutting jobs here while expanding employment abroad. And the percentage of their total profits that derive from overseas operations has been rising sharply.

The old dictum, "What's good for General Motors is good for America" has a hollow ring in an age of globalization and corporate downsizing. After laying off more than 70,000 workers since 1993, General Motors now ranks as the wealthiest U.S. corporation, raking in more than $168 billion in revenues in 1995 alone-that's equal to the annual wages of more than 19 million Americans earning the minimum wage.

The increasing globalization of U.S. corporations gives them the leverage to hold down wages and resist unionization. Average real wages (corrected for inflation) have been falling since the early 1970s. By 1992, average weekly earnings in the private, non-agricultural part of the U.S. economy were 19 percent below their peak in the early 1970s. Nearly one-fourth of the U.S. workforce now earns less in real terms than the 1968 minimum wage! The trend toward less unionization is evident in the third graph below, which shows a steady decline in union membership since the 1950s. This is a chicken-and-egg relationship because weaker unions are less able to restrict corporate behavior and the resulting freedom of action for global corporations means unions will be weakened further by companies putting their workers here in competition with low-paid workers abroad.

Working People Feel Insecure

The restructuring of our political and economic life due to globalization may be as significant a process as the industrial revolution. In early 1996 the mainstream media- incited by the rhetoric of Republican presidential candidate Pat Buchanan-focused an unusual amount of attention on the plight of U.S. workers in a globalizing economy. As the New York Times editorialized on February 25, 1996: "voters are clearly unnerved by corporate restructurings and the search for cheaper labor overseas." The Times went on to point out that "between 1991 and 1995, nearly 2.5 million Americans had lost their jobs because of corporate restructuring" and these job losses occurred "as the top pay for corporate executives has soared to nearly 200 times that of the average worker."

The February 26, 1996 issue of Newsweek ran a blaring cover story on corporate downsizing entitled "Corporate Killers." The piece was blunt in its criticism of corporate insensitivity: "Something is plain wrong when stock prices keep rising on Wall Street while Main Street is littered with the bodies of workers discarded by big companies like AT&T and Chase Manhattan and Scott Paper. Once upon a time, it was a mark of shame to fire your workers en masse. Today, the more people a company fires, the more Wall Street loves it, and the higher its stock price goes."

One would expect nicer behavior from the corporate chieftains who run our economy. Over the last 15 years transnational corporations have gotten basically everything they wanted: the collapse of communism, free trade agreements, deregulation, lower taxes, the weakening of trade unions and the pushing down of wage rates. Yet while profits and the stock market soar, the standard of living for most Americans is plummeting. There is a dangerous dynamic at work. In an effort to cut costs and boost profits, AT&T announced in September 1995 that they were laying off 40,000 workers. The company's share price on Wall Street immediately jumped higher. Because the salaries of top AT&T executives are partly made up of share ownership, the executives are personally benefiting from the suffering of thousands of dislocated families.

Technology Turned Against Us

Amid the media hype about job losses due to corporate downsizing, a key fact was ignored: a large part of the unemployment afflicting our country is due to a centuries-old drive by companies to replace workers with technology.

Top management sees technology as a way to dump workers-who make demands and question authority-and replace them with machines, which have not been known to form unions.

The trend is evident when you consider that employment in the U.S. manufacturing sector has declined over the past 30 years from 33 percent of the total workforce to less than 17 percent, even though our manufacturing sector has steadily increased output. As this trend continues we will see the elimination of most U.S. manufacturing jobs.

Contrary to what we've been told, the service sector (telecommunications, banking, insurance, real estate, retail and wholesale trade) will not replace the jobs lost in the manufacturing sector. First, the pay tends to be lower in the service sector. And second, technology is also replacing workers in the service sector. Whole layers of white collar office workers are being replaced by small, highly skilled teams using the latest computer technology. Thousands of postal workers have been made redundant by optical scanners and computerization. Between 1983 and 1993 banks in the U.S. replaced 179,000 human tellers with automated teller machines, and even more bank employees will be cut in years to come. It's not that technology is bad, but when technological innovation is used to get rid of workers, with no systematic program to create meaningful replacement jobs, the result is widespread insecurity that saps worker morale. Is it just a coincidence that the U.S. Postal Service has imposed years of high-tech speedup on its workers-thus boosting profits to record levels-yet is also notorious for its workers being among the most severely alienated in the world?

Our government hides unemployment by defining it away. The common sense definition of unemployment-people wanting a job but unable to get one-puts the number of unemployed in 1994 at 15.9 million, or 12.5 percent of the workforce. The official rate (6.1% in 1994) is reached by not counting the 6 million workers who want jobs but are so discouraged they've stopped looking, and counts as fully employed some 30 million who are only working part-time.

Although employers may no longer need us as workers, they do need us as consumers. As a recently laid-off veteran of Bendix Corp. put it: "If they had their way, management would have robots doing everything in the plant, but they forget that robots don't buy anything." If each individual corporation stays focused on climbing the profit ladder in an increasingly global marketplace, it will shed workers for any reason that makes the company more profitable. At the micro-economic level of the company this makes sense. But when all these micro-economic decisions to cut workers are added up, the macro-economic impact is stagnation and all the social ills that go with it.

The Casino Economy

Another key dynamic of the globalized economy is the massive shift of capital from productive investment in the "real economy" to speculative investment in the "casino economy."

It's quite logical. If you have a few million dollars to invest, there are two basic approaches you can take. You could invest in the real economy by building a factory to make bread or shoes or some other product or service that meets a human need. On the other hand, you could invest your money in paper assets: stocks, bonds, mutual funds or a wide range of financial instruments that may not create many jobs or useful products but they do pay you a good rate of interest without all the bother of investing directly in production. Also, these speculative investments tend to be more liquid (able to be converted to cash) than investments in the real economy.

In recent years we have seen explosive growth in a new form of financial speculation: the "derivatives" market that is even one more step removed from the real economy. These investments 'derive' their value from underlying assets such as stocks, bonds or currencies, but they are merely bets as to whether the value of the underlying asset will rise or fall over a given period of time. So you might bet that the Japanese yen will fall over the next 6 months relative to Thailand's currency, the bhat. There are an endless variety of derivatives, designed merely to help investors hedge against risk, not to produce anything real. To see how important the derivatives market has become, compare it to global trade in real goods. The annual value of global merchandise trade is about $4 trillion. The global derivatives market equals this dollar volume of transactions in just two days! The globalization of capital markets and the shift of investments from the real economy to the casino economy has weakened the power of government to control national economies and protect people's jobs. Washington and other national governments are held hostage by the mobility of globalized capital. Companies can threaten to move out when confronted with higher taxes or stiffer environmental regulations.

Bankrupting Our Government

As less workers are gainfully employed, income tax revenue to the government dries up at the same time as the demand for government services such as unemployment insurance and food stamps increases.

The squeeze between declining government income and increasing government expenses has produced record budget deficits and an expanding mountain of government debt. Federal government debt stood at $4.9 trillion in early 1996. The interest we pay to the owners of that debt ($232 billion in 1995) is now one of our largest federal budget expenditures: without this expenditure, there would be no budget deficit. During the 1990s, we the taxpayers will transfer more than $2 trillion to the wealthy few and abroad who own the Treasury bills that make up the national debt.

In the heated debate over the federal budget, Congress and the media have focused our attention on the spending side of the ledger. But the other revenue coming into the government just as important. Conservatives have convinced many Americans that excessive spending on social programs is the key reason for the fiscal crisis of the state. Yet a more crucial problem is that the wealthy corporations that dominate our government and our social values are able to avoid paying their fair share of taxes.

Both major political parties are uncritical supporters of the "free market" and globalization of the economy. Yet this very process of increasing economic gigantism is behind the budget crisis and the long-term insolvency of our government. As corporations have grown in size they have expanded their capacity for lobbying our elected leaders to reduce corporate taxes and remove restrictions on the international movement of commodities and money. Plus, innovations in computers and telecommunications allow financiers to move billions of dollars around the world instantly, making it more difficult for governments to monitor and tax international transactions.

As the corporate share of the tax load was cut, who picked up the slack? A big portion was shifted to working people. In the early 1950s, corporations paid 76 cents in taxes for every one dollar paid by families and individuals. By 1992 corporations were paying just 21 cents for every one dollar in taxes paid by families and individuals.

The World's Biggest Debtor

Not all of the tax load could be pushed onto the current generation of workers. Some of it was financed through deficit spending: issuing government bonds to borrow from the capital markets other words, taxing our children and grandchildren.

It is odd that the Republicans have made a big issue of the deficit and the national debt, seeing as it was Republican presidents (Reagan and Bush) who created the record deficits that produced most of the national debt. When Ronald Reagan took office on January 20, 1981 the national debt was under $1 trillion. By the end of the Bush administration, on January 20, 1993, the national debt had quadrupled to $4 trillion. The interest we taxpayers fork over to bondholders on this additional $3 trillion in debt (figuring at an average of 7 percent) comes to $210 billion: far more than the current budget deficit of $172 billion. If Reagan and Bush hadn't splurged on the military while giving huge tax breaks to their corporate backers, there would be no budget deficit.

One of the long-term effects of budget deficits and skyrocketing debt is a large transfer of wealth upward in the class structure of our country. During the 1980s, the U.S. taxpayer transferred $1.1 trillion in interest payments to the wealthy corporations and individuals who own the national debt. In the 1990s some $2 trillion will be redistributed upward on the social ladder via interest payments on the national debt.

Is the U.S. Becoming a Third World Country?

Just to review, a combination of factors of US companies moving jobs abroad, thousands of workers being replaced by technology, the weakening of the U.S. trade union movement, changes in tax legislation to favor wealthier taxpayers have produced a widening gap between a wealthy elite and the majority of Americans. Business Week reports: "The gap between high- and low-income families has widened steadily since about 1980, hitting a new high every year since 1985."

Growth is not a panacea. "Between 1977 and 1989 the 1 percent of families with incomes over $350,000 received 72 percent of the country's income gains while the bottom 60 percent lost ground." A key reason for the decline in the majority's income share has been the steady fall in real wages. In 1992, average weekly earnings in the private, non-agricultural part of the U.S. economy were 19 percent below their peak in the early 1970s. Nearly one-fourth of the U.S. workforce now earns less in real terms than the 1968 minimum wage! Add another 5-10 percent of the population who have no jobs at all, and you've got a significant portion of the population living in poverty. Hence Newsweek's conclusion that "millions of Americans believe they're being screwed by corporate America and Wall Street."

Yet corporate profits and the salaries of top management have soared. Corporate profits are up 40 percent since 1993, and, as Business Week reported, the average pay of Chief Executive Officers at the 362 largest companies in the U.S. jumped 30 percent during 1995 to an average of $3,746,392.

The sharp growth in inequality caused U.S. Secretary of Labor Robert Reich to warn: "We have the most unequal distribution of income of any industrial nation in the world ... we can't be a prosperous or stable society with a huge gap between the very rich and everyone else." But data on income is not the best indicator of inequality. Wealth measured by ownership in stocks, bonds, savings accounts, real estate is a far better measure of real power in society.

A 1995 study by the Twentieth Century Fund shows that since the late 1970s wealth inequality in the U.S. has been increasing. By the 1990s, the richest one percent of Americans owned twice as much wealth as the poorest 80 percent!

Contrary to what the Republicans have been preaching, it is not big government that is undermining Mainstreet, USA. Rather, mainstreet is being undermined by the fact that our government is dominated by monied interests and those monied interests are increasingly global, owing no allegiance to any particular country.

What can we do about it? Plenty!

Building an Alternative

As Tom Athanasiou says in his excellent book, Divided Planet: "Our tragedy lies in the richness of the available alternatives, and in the fact that so few of them are ever seriously explored."

The technical means exist for feeding, housing and educating all the people on earth: it's mainly a matter of developing the political will to build a sustainable and equitable world economy. The goods news is that there are thousands of groups struggling to create more democratic control of the capitol and the capital. What needs to be done?

Check out these resources:

Ten Ways to Democratize the Global Economy will give you plenty of ideas and concrete ways to get involved in the struggle to make our economy more democratic.

Like getting involved with the struggle for Fair Trade, a movement to ensure that everything from the gifts we buy our loved ones to the coffee we drink in the morning is made in ways that benefit local communities.

Watch this video of Kevin talking about all of these issues...and more!

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