In my Fish Story blog, the village elders, being too old to fish, nonetheless were given special privileges by the entire village by virtue of their age and experience. America’s “elders” instead must rely on our “village nobles” to anoint them with voting privileges. In American elections, 94% of the time, elected officials with the largest campaign war chests win their elections. Over 90% of campaign funding comes from a combination of the 2% of our wealthiest individuals, 1% of our largest corporations (mainly multinational corporations-MNCs), and international investment bankers. Recognizing these sobering statistics, our politicians must first satisfy this very small minority if they are to stay in power long enough to propose legislation of their conscience.
To satisfy this elite consortium of America’s campaign donators, our legislators must support free trade, unfettered by taxation, and protected by a worldwide military presence. Free trade allows wealthy investors, MNC’s and bankers to share the profits of direct foreign investments (DFI) in other countries. However, in order for profits to accrue, low price goods from those countries must have free access to the American consumer, the world’s largest market.
With access to American markets, wealthy individuals earn high returns on their investments in emerging countries’ industries, investments protected by 1,000 U.S. military bases keeping a watchful eye on the sovereign boundaries of our trading partners. Investment banks earn their share of future profits by funneling funds from wealthy individuals to MNCs. And MNCs profit from increased access to exponentially growing foreign consumer markets. They also profit from selling lower priced goods and services to American consumers.
MNCs can offer lower prices to Americans because they have lower costs. They achieve lower costs by leveraging cross border assets. American parent companies transfer trade secrets, innovation, and core skills across national borders to foreign subsidiaries. Then, after providing low cost labor, subsidiaries return low cost finished goods to American consumers. In addition, through transfer payments, MNCs transfer revenues and costs artificially across borders to reduce tax payments. Costs are assigned to American parent companies to reduce profits, and revenues are transferred to increase subsidiary profits in countries that have low or no taxes. Our legislators, while publicly decrying these practices, tacitly support them.
We are witnessing a flight of American wealth and jobs to emerging economies and America’s policy for managing the threat seems inadequate. The difficulty in crafting an optimum policy is that some MNCs actually have net benefits for America while others do not. As an example, as American MNCs grow large foreign markets, they hire additional, high paying, American parent company jobs to support foreign subsidiaries, jobs that would not exist without expansion into other countries. MNCs hire a disproportionate 19 percent of Americans and those jobs on average pay 20% more than domestic company jobs.
Americans argue that we are losing manufacturing jobs to low cost countries. True, but some of these jobs would be lost whether or not American MNCs invested in emerging countries. If our MNCs did not invest in these countries, other countries’ MNCs, that make up 88% of the total number of MNCs, would invest in our stead, still taking our jobs, without any of the benefits that would accrue our American MNCs. Nonetheless, the cost of jobs lost to foreign investments, including social burden costs such as unemployment compensation, more than offset the benefits of lower costs to American consumers.
America can slow the pace of job losses by investing in increased productivity of American businesses. But to reverse the job loss trend, we must accelerate innovation to create new high paying jobs. My job voucher plan counteracts our MNC dilemma by employing those that have lost jobs to overseas multinationals, directly into small, non-multinational businesses, expecting that these businesses will use the abilities of our citizens to spur innovation and productivity.
It also helps small businesses compete for capital that was cut off in this recession. While large, multi-national corporations have continued to have easy access to low interest capital, small businesses have been cut off from capital and credit. It also provides intellectual capital to small, non-multinational companies that historically have provided hiring out of recessions and that are breeding grounds for innovation; that critical factor that must be spurred to counteract the transfer of jobs overseas is paid for without increasing the federal budget.