[FoRK] Fwd: [IP] The Economy Summed Up: Pay Any Price, Bear Any Burden, to Avoid Creating Jobs

Joseph S. Barrera III joe at barrera.org
Mon Mar 15 17:36:34 PST 2004

This article might address the "why" of the Jobless Recovery...

-------- Original Message --------
Subject:     [IP] The Economy Summed Up: Pay Any Price, Bear Any Burden,
to Avoid Creating Jobs
Date:     Wed, 10 Mar 2004 17:03:11 -0500


The political analyst Charlie Cook's weekly column, available by e-mail
subscription <http://nationaljournal.com/about/cookcolumn.htm> is a real
treasure, and usually offers much more than just the horserace. There's a
single paragraph in today's column that I think sums up what we need to
know about the economy and jobs better than anything I've read:
In December, the CEO of a California-based high tech firm told me that
"there is no amount of overtime that we will not pay, there is no level of
temporary services that we will not use, there is no level of outsourcing
or offshoring that we will not do, in order to prevent us from having to
hire one new, permanent worker in the U.S." As I travel around the country,
meeting with business leaders, I hear similar, though less succinct
thoughts in almost every sector and every part of the country. U.S. wages,
health care, and other benefit costs have gotten so high -- and the press
by investors for high stock prices is so great -- that the premium is on
wringing every last bit of work out of as few employees as possible, to do
anything but incur the costs of adding permanent employees. [emphasis added]

There is a lot to this anecdotal paragraph. First, it puts
outsourcing/offshoring in context. It is not a phenomenon to be studied and
accepted or discouraged or encouraged in isolation, but part of a larger
trend that include various techniques to avoid actually hiring people.

I know of plenty of companies, large and small, as well as foundations
and nonprofits where the stock price is not an issue, that are currently
obsessed with limiting the "headcount" in just this way. They might spend
more on consultants, on training short-term staff, on overtime, or on
technology, but as long as they keep the actual number of employees from
increasing, everyone's happy, or, I should say, management and shareholders
are happy. This is a new phenomenon, different from the management-tier
downsizing of the early 1990s, and also different from a recession in which
companies are trying to cut short-term costs. Our entire nation is in the
grip of Headcount mania.

Second, it strengthens a point that was true in the prosperous period of
the late dot-com boom as well as today: We have been consistently invited
to give up security in exchange for short-term prosperity. More overtime,
more consulting, and more domestic outsourcing mean that some people and
their families are doing well -- often better than they would be doing on a
salary, and often with the chance to start their own businesses, even if it
is doing just the same thing they used to do as an employee. Other examples
of the tradeoff: We are rapidly giving up defined-benefit pensions, which
ensure a fixed income for life, in favor of defined-contribution plans,
which involve individual stock market investments, with the potential for
greater returns but more risk. In calling once again for private accounts
in Social Security, Bush is asking to do the same with that portion of
national savings. We are giving up savings that used to be held in passbook
accounts and certificates of deposit, in favor of mutual funds and stocks.
These tradeoffs are not all bad. For many people, especially when we have a
certain amount of security in the form of skills, or financial support or a
home, there is vastly more opportunity in this economy than in the economy
of the 1970s. But the loss of security comes at a huge price.

This must be part of the case for government going forward. Government,
under the liberal consensus of the New Deal through the 1970s, did not
redistribute income. Rather, government's greatest achievement was to
create SECURITY -- the kind of security that created the opportunity to
join the middle class. Deposit insurance, pension insurance, COBRA (the
provision that allows people to maintain health insurance after losing a
job), unemployment insurance, etc. -- these were the great achievements of
American liberalism. And they are either becoming irrelevant, or completely
neglected in the current climate. In the recession of the early 1990s, for
example, there was a huge bipartisan effort to ensure that Unemployment
benefits were extended again and again, even though, under the budget rules
at the time, every extension had to be paid for with cuts elsewhere in the
budget. Even though there is no such budgetary constraint today, we have
now allowed the average period of unemployment to reach a record, and yet
allowed the extended federal program that provides benefits beyond 26 weeks
to lapse months ago.

As a candidate, Kerry should begin to talk about the role that government
can play in providing the security that people need to navigate the rough
waters of the economy. It is a role that Bush completely overlooks, or
opposes, but that even liberals rarely talk about.

Third, the Cook paragraph shows that we must do something about the costs
that prevent American businesses from hiring. We don't want to reduce
wages, certainly. The first answer is health care. In addition to the many
injustices, inequalities and hassles in our health care system (to the
extent that it can be called a system), there is the fact that it is a huge
disincentive to job creation. Health care costs can represent up to a
quarter of a low-wage worker's compensation, but most of all, they are
totally unpredictable and going up rapidly. It means that every time a good
(i.e., health-insurance-providing) company hires a permanent employee in
the U.S., they take on a totally unpredictable burden, the cost of health

There is no reason that risk should be the burden of some employers, while
other employers evade health care costs entirely. This is why I find the
idea of a system in which health insurance is attached to the individual
rather than the job so appealing. It not only ensures near-universal
coverage, it gives business predictability in their health care costs and
requires all businesses to contribute, rather than letting some employers
take advantage of others. The New America Foundation has the most detailed
approach here, in a readable and persausive paper.

Finally, we should think about how we can change the culture of the
corporation so that they feel less pressure from investors on the stock
price. It is not that I think corporations should feel some responsibility
to someone other than their owners, although there is a strong case to be
made that the limited-liability corporation is a creation of the
government, and in fact another way of providing security so that people
can take risks, and that therefore the public has a right to ask for
certain behavior in return. But even short of that horribly radical idea,
companies should feel some flexibility to take a long-term approach, one
that might depress the stock price in the short term but lead to a more
profitable and vibrant company in the long term. I won't say more about
this, because I know very little about it, but it does seem to be part of
the story of the economy.

Posted by Mark Schmitt on March 09, 2004

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