Thursday, October 18, 2007


Robert Reich's New Idea

Professor Reich has written a book titled something like "Extreme Capitalism." He argues convincingly (to me, at least) that we should stop expecting corporations to behave in a manner that benefits society, the employees, etc. We have to remember that American corporations are now competing with other firms all over the world and they must do whatever is necessary to stay in business and please their investors and customers. If it is cheaper to close a plant in the United States, lay off all the workers, and open a plant in China or Malasia or Indonesia with workers that earn only a tenth as much as the laid-off American workers, then the corporation will do it. If not, a competitor will and will then undersell the "good" corporation and put it out of business.

Some fans of globalism argue that it's OK if the American workers are laid off. They can get other jobs. The customers will benefit from the lower prices. The investors will benefit from the greater profits. The change has a net benefit on the American economy.

These fans do not point out the ultimate result of this rush to be globally competitive. The laid-off Americans will indeed find other jobs, but they will be jobs that pay less. Eventually all workers all over the world will have their wages equalized by this process. American workers will earn no more than their Chinese or Indonesian counterparts. We Americans will have to give up our relatively high standard of living. When it is no longer profitable to move jobs overseas, the process of globalization will have produced a kind of stability - a stability in which nearly all of us are miserably poor.

Robert Reich points out that we must apply strict rules and enforceable laws to the conduct of corporations. If we want Wal-Mart workers to receive wages sufficient to put them above the poverty line, we must impose minimum wage requirements, not only on Wal-Mart but on its competitors, such as Target. If we want to prevent American plants from being closed and replaced by plants in low-wage countries, we must impose a penalty, a tax or fee or whatever you want to call it, that is sufficient to make such a change unprofitable. Perhaps the workers laid off should be given money equivalent to several years at their previous salaries to enable them to obtain training for new jobs, or just to enable them to go on living for a while, or to supplement the low wages in the new jobs that they find. Norway imposes such a rule on its corporations.

The idea that capitalism works better if strict, fair regulation is applied than if it is allowed to operate completely free of all government restraint goes against the thinking of may modern economists and politicians. However, I am old enough to know that this idea did not originate with Robert Reich. When I was a child in high school, my father explained to me that our economic system was "regulated capitalism." That was the conventional thinking in the 1920's and 1930's. Robert Reich's great idea is older than he is.

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