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question_1_test.docxQUESTION 1
Lesson 7 presented several national policy matters that have developed over the past 10 to 20 years. Please explain how public policy is formed in the American system of government. How is the problem identified? Who is responsible for determining solutions or setting the public policy agenda? (Hint: Read the examples and ask yourself these questions as you read the information presented about each.) Fully respond to the question, in a well-crafted essay of at least 500 words, and cite sources used.
Lesson 7: Public Policy
Expected Outcomes To understand the political economy of the United States, and to critically evaluate various theories and approaches regarding the pressing and controversial economic issues of today.
Overview Politics is partly the business of determining “who gets what, when, and how,” so it is important to consider several macro-economic issues in any introductory course to American government and politics. This area of study can be considered “political economy.” Labor laws, entitlement programs, corporate welfare, globalization and outsourcing are all considered in this lesson.
What can and should the federal government do about these issues?
Labor and Unions The labor movement is the story of “rise” and “fall.” A century ago, the labor union was in its infancy. While many people associate today’s labor movement with strong unions (and sometimes with unreasonable demands for higher wages and more benefits), the labor movement actually has its origins in fighting for basic work safety. It also fought against child labor.
Eventually, despite local, state and federal obstacles (including several Supreme Court decisions), the labor movement accomplished many of its goals. In fact, some economists argue that the labor movement became too successful as it was able to secure unsustainably-generous contracts from automobile manufacturers, for instance.
Indeed, the “fall” of the labor movement can be seen in the massive layoffs in the industrial sector. General Motors, for example, laid off more than 25,000 employees – largely because GM could no longer afford to pay them the wages and benefits that the United Auto Workers (UAW) had secured in the 1980s and 1990s.
Furthermore, union membership has been continually falling for several decades – measured as a percentage of the labor force. The right to strike is taken as a given. At the outset of the American Industrial Revolution, however, it was often illegal for workers to organize into unions and strike.
A demonstration over an 8-hour working day in Chicago drew about 1,500 people in 1886. When police attempted to disperse the meeting, a bomb exploded and rioting ensued. Seven policemen and four other persons were killed, and more than 100 persons were wounded. Eight “anarchist” leaders were convicted of inciting violence. Four were hanged, one committed suicide, and the remaining three were pardoned after seven years by the Governor of Illinois on the grounds that the trial had been unjust.
On April 20, 1914, 20 men, women and children were killed in the Ludlow Massacre. The coal miners in Colorado and other western states had been trying to join the UMWA for many years, but they were opposed by the Rockefeller-owned Colorado Fuel and Iron Company.
Upon striking, the company evicted the miners and their families from their company-owned houses. The miners then set up a tent colony on public property. Colorado militiamen, coal company guards, and strike breakers attacked the tent city, setting it ablaze and firing into the tents. The perpetrators were never punished, but many of the surviving miners were arrested.
An event in Arizona influenced the labor movement throughout the United States. Over 1,000 striking workers, increasingly involved with the Industrial Workers of the World (I.W.W.), were forcibly deported from Bisbee, Arizona. The workers often reached other mining and industrial operations with the intent to organize labor.
San Francisco's maritime strike, led by militant labor leader Harry R. Bridges, was long and bitter. The International Longshoremen's Association (ILA) demanded improved wages and working conditions, coast-wide bargaining rights, and the establishment of union-controlled hiring halls. On July 5, 1934, a thousand police officers attempted to clear the strikers from the waterfront so that strikebreakers could do the work instead. In the ensuing riot, 64 people were injured and two strikers were killed. The governor sent in the National Guard to prevent further violence.
This strike was one of the first that was hugely successful for labor. Rather than walking off the job (which makes them vulnerable to being fired and replaced by strikebreakers), the workers at a Flint, Michigan, plant simply sat down and refused to leave. During the strike, women provided a first aid station, and, after hearing reports that the police were going to gas the factory, a group of women – the Emergency Brigade – smashed the factory’s window.
The strike ended after General Motors accepted the U.A.W. as the bargaining agent. The Wagner Act was subsequently passed. This Act protected the rights of most workers to organize unions, to engage in collective bargaining over wages, hours, and terms and conditions of employment, and to take part in strikes and other forms of concerted activity in support of their demands. At first, the Supreme Court declared the Act unconstitutional. Then it reversed itself (5 to 4) in 1937 in the famous case: National Labor Relations Board v. Jones & Laughlin Steel Corporation (1937).
MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court:
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The Act does not compel agreements between employers and employees. It does not compel any agreement whatever. It does not prevent the employer "from refusing to make a collective contract and hiring individuals on whatever terms" the employer "may by unilateral action determine." [n12] The Act expressly provides in § 9(a) that any individual employee or a group of employees shall have the right at any time to present grievances to their employer. The theory of the Act is that free opportunity for negotiation with accredited representatives of employees is likely to promote industrial peace, and may bring about the adjustments and agreements which the Act, in itself, does not attempt to compel.
After 1937, unions around the country grew in size and strength. In fact, it might be argued that unions became so powerful that they demanded – and received – wages and benefits so high that companies like General Motors were eventually forced to move factories to other countries (under new free trade agreements) or shut them down all together.
If there is logic to the above argument, then it might be reasonable to conclude that unions are necessary to improve minimum standards, wages and work conditions. But, if left unchecked, then unions could also force industries to slow their growth and export jobs.
Unions and the activist groups representing workers were responsible for eliminating child labor. Child labor was common at the turn of the century, but it was not without its critics. The Keating-Owen Child Labor Act of 1916 was an attempt to outlaw child labor for humanitarian reasons. The Act was vigorously backed by women’s groups and progressives; it was opposed by industry and states’ rights advocates. The Keating-Owen Child Labor Act states, in part:
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The Keating-Owen Child Labor Act “That no producer, manufacturer, or dealer shall ship or deliver for shipment in interstate or foreign commerce, any article or commodity the product of any mine or quarry situated in the United States, in which within thirty days prior to the time of the removal of such product there from children under the age of sixteen years have been employed or permitted to work, or any article or commodity the product of any mill, cannery, workshop, factory, or manufacturing establishment, situated in the United States…” |
The Act was struck down as unconstitutional by the Supreme Court just two years later because it overstepped the purpose of the federal government’s powers to regulate interstate commerce. It was up to the states, the argument ran, to prohibit child labor.
The Supreme Court found the Keating-Owen Child Labor Act to be unconstitutional in Hammer v. Dagenhart (1918):
“The power of Congress to regulate interstate commerce does not extend to curbing the power of the states to regulate local trade.”
A constitutional amendment was soon proposed to give Congress the power to regulate child labor, but it was stalled in the 1920s by an effective campaign to discredit it.
Federal protection of children would not be obtained until passage of the Fair Labor Standards Act in 1938, which was also challenged before the Supreme Court before emerging intact. In U.S. v. Darby (1941), the Supreme Court upheld the constitutionality of the Fair Labor Standards Act, and it is still in force today.
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Justice Stone in U.S. v. Darby (1941) “The power of Congress over interstate commerce is not confined to the regulation of commerce among the states. It extends to those activities intrastate which so affect interstate commerce or the exercise of the power of Congress over it as to make regulation of them appropriate means to the attainment of a legitimate end, the exercise of the granted power of Congress to regulate interstate commerce.” |
The Entitlement Society & Corporate Welfare Who gets what? This is a basic question to any political system. Much of what happens in Washington revolves around the question “who gets what?” Does the federal government spend its revenue on “guns or butter?” How much national debt is acceptable? To what extent should there be social or corporate welfare? How high should taxes go to fund federal programs?
One of the most enduring controversies of the 20th century, which continues to this day, is the issue of how much the government should help the poor – and how much it should stimulate business with subsidies or tax breaks. This political debate between “social welfare” and “corporate welfare” is the topic of this unit.
An Entitlement Society “Welfare” has a negative connotation because there is abuse in the system. Incidents of abuse and scams are regularly covered by the media, adding to the negative connotation. At the same time, civilized societies have some kind of safety net because no market system can adequately provide everyone with a job; and, some people are perpetually unemployable, such as the sick, the injured, the illiterate, children, etc…
The current welfare system of the United States has its origins in the Great Depression, which was a near total collapse of the economic system. Certainly, the Great Depression left millions of Americans unemployed with no income, many of whom wandered the country desperately searching for work. The New Deal was President Franklin Delano Roosevelt’s response to the Great Depression. It is important because many of its basic assumptions remain with us today. High on that list is that people are “entitled” to government assistance in times of crisis. And, for better or for worse, entitlements (medical insurance, pensions, welfare) have increase steadily over the decades to keep up with inflation.
The New Deal consisted of many different efforts to end the Great Depression. Many of these programs – and the agencies administering them – continued to expand even as the economy recovered. The fear is that we are moving towards a society in which people are “entitled” to payments from the federal government. The baby-boom generation threatens to take the notion of entitlements to new heights.
Today, such social programs no longer just relieve pressing needs of hunger and malnutrition, but also invest in the educational development of the very young. “Head Start,” for example, is a federally-subsidized pre-Kindergarten program with popular support.
There is another political problem in the United States. People (and politicians) are supportive of reducing federal spending in the abstract, but when it comes time to reconsider Medicare, Medicaid and Social Security, they are generally not enthusiastic about making actual cuts.
In the United States, assistance of this type has now been largely restricted to households where children are included (usually headed by single mothers) and even these households have only been able to access benefits for a maximum of five years per lifetime of the adult recipient since 1996. Before that, most American states had been providing welfare benefits to single adults and childless married couples as well since the Great Depression, but the number of states doing so declined steeply during the 1990s. Many of the states still doling out such benefits use methods other than cash payments to render the assistance; indeed, today only two states - New Jersey and Utah - still give out cash to poverty-stricken adults who do not have child dependents.
These programs were often known officially by such names as Home Relief and General Assistance. The federal welfare program for households with children was originally named Aid to Dependent Children; this was later changed to Aid to Families with Dependent Children (often referred to by the acronym AFDC), and since 1996 has been officially known as Temporary Assistance to Needy Families (or TANF).
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From the White House: Expand Access to Jobs · Help Americans Grab a Hold of and Climb the Job Ladder: The U.S. will invest $1 billion over five years in transitional jobs and career pathway programs that implement proven methods of helping low-income Americans succeed in the workforce. · Create a Green Jobs Corps: The U.S. will create a program to directly engage disadvantaged youth in energy efficiency opportunities to strengthen their communities, while also providing them with practical skills in this important high-growth career field. · Improve Transportation Access to Jobs: President Obama will work to ensure that low-income Americans have transportation access to jobs. Obama will double funding for the federal Jobs Access and Reverse Commute program to ensure that additional federal public transportation dollars flow to the highest-need communities and that urban planning initiatives take this aspect of transportation policy into account. · Reduce Crime Recidivism by Providing Ex-Offender Supports: President Obama will work to ensure that ex-offenders have access to job training, substance abuse and mental health counseling, and employment opportunities. Obama and Biden will also create a prison-to-work incentive program and reduce barriers to employment. Make Work Pay for All Americans · Expand the Earned Income Tax Credit: President Obama will increase the number of working parents eligible for EITC benefits, increase the benefits available to parents who support their children through child support payments, increase benefits for families with three or more children, and reduce the EITC marriage penalty, which hurts low-income families. · Raise the Minimum Wage to $9.50 an Hour by 2011: President Obama believes that people who work full-time should not live in poverty. Even though the minimum wage will rise to $7.25 an hour by 2009, the minimum wage's real purchasing power will still be below what it was in 1968. He will further raise the minimum wage to $9.50 an hour by 2011, index it to inflation and increase the Earned Income Tax Credit to make sure that full-time workers can earn a living wage that allows them to raise their families and pay for basic needs such as food, transportation, and housing -- things so many people take for granted. · Provide Tax Relief: President Obama will provide all low and middle-income workers a $500 Making Work Pay tax credit to offset the payroll tax those workers pay in every paycheck. He will also eliminate taxes for seniors making under $50,000 per year. Strengthen Families · Promote Responsible Fatherhood: President Obama will sign into law his Responsible Fatherhood and Healthy Families Act to remove some of the government penalties on married families, crack down on men avoiding child support payments, and ensure that payments go to families instead of state bureaucracies. · Support Parents with Young Children: President Obama will expand the highly-successful Nurse-Family Partnership to all 570,000 low-income, first-time mothers each year. The Nurse-Family Partnership provides home visits by trained registered nurses to low-income expectant mothers and their families. · Expand Paid Sick Days: Today, three-out-of-four low-wage workers have no paid sick days. The President will support guaranteeing workers seven paid sick days per year. Increase the Supply of Affordable Housing · Supports Affordable Housing Trust Fund: Obama has supported efforts to create an Affordable Housing Trust Fund to develop affordable housing in mixed-income neighborhoods. · Fully Fund the Community Development Block Grant: Obama will fully fund the Community Development Block Grant program and engage with urban leaders across the country to increase resources to the highest-need Americans. Tackle Concentrated Poverty · Establish 20 Promise Neighborhoods: Obama will create 20 Promise Neighborhoods in areas that have high levels of poverty and crime and low levels of student academic achievement in cities across the nation. The Promise Neighborhoods will be modeled after the Harlem Children's Zone, which provides an entire neighborhood with a full network of services from birth to college, including early childhood education, youth violence prevention efforts, and after-school activities. · Ensure Community-Based Investment Resources in Every Urban Community: Obama will work with community and business leaders to identify and address the unique economic development barriers of every major metropolitan area. Obama and Biden will provide additional resources to the federal Community Development Financial Institution Fund, the Small Business Administration and other federal agencies, especially to their local branch offices, to address community needs. · Invest in Rural Areas: Obama will invest in rural small businesses and fight to expand high-speed Internet access. They will improve rural schools and attract more doctors to rural areas. And they will implement a bold climate change and energy independence plan that will revitalize rural America through new investments in renewable energy production, including wind, solar, and biofuel investments. |
Corporate Welfare Defenders of “corporate welfare” would not even use that phrase to describe it. Senators and Representatives who favor the infusion of government funds into the private sector justify it in terms of stimulating business and commerce. But, at the end of the day, critics claim the federal government ends up transferring money from taxpayers to businesses and corporations in the form of export subsidies, agricultural subsidies and tax breaks.
Liberal democrats come out against corporate welfare most often, so it is useful to consider the arguments against such payments by a Libertarian-Republican from Texas, Ron Paul.
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No Corporate Welfare by Congressman Ron Paul (R-TX) Mr. Chairman, we are here today to reauthorize the Export-Import Bank, but it has nothing to do with a bank, do not mislead anybody. This has to do with an agency of the government that allocates credit to special interests and to the benefit of foreign entities. So it is not a bank in that sense. To me it is immoral in the fact that it takes from some who cannot defend themselves to give to the rich who get the benefits. And I just do not see that as being a very good function and a very good program for the U.S. Congress. Besides, I would like to see where somebody gives me the constitutional authority for doing what we do here and we have been doing, of course, for a long time. But I do not want to talk about the immorality of this so-called bank or the unconstitutionality of it. I want to talk just a second or two about the economics of it. It is really bad economics. It is pointed out that it helps a company here or there, but what is never talked about what you do not see. This is credit allocation. In order to take billions of dollars and give it to one single company, it is taken out of the pool of funds available. And nobody talks about that. There is an expense. Why would not a bank loan when it is guaranteed by the government? Because it is guaranteed. So if you are a smaller investor or a marginal investor, there is no way that you are going to get the loan. For that investor to get the loan, the interest rates have to be higher. So it is a form of credit allocation, and it is also a form of protectionism. We do a lot of talk around here about free trade. Of course, there is a lot of tariff activity going on as well, but this is a form of protectionism. Because some argue, well, this company has to compete and another government subsidizes their company so, therefore, we have to compete. So it is competitive subsidization of special interest corporations in order to do this. Now, it seems strange that we here in the Congress are willing to give the beneficiary China the most number of dollars. They qualify for nearly $6 billion worth of credits. And that just does not seem like the reasonable thing for us to do. So I strongly urge a no vote on this bill… Enron provides a perfect example of how Eximbank provides politically-powerful corporations competitive advantages they could not obtain in the free market. According to journalist Robert Novak, Enron has received over $640 million in taxpayer-funded ``assistance'' from Eximbank. This taxpayer-provided largesse no doubt helped postpone Enron's inevitable day of reckoning… It is not only bad economics to force working Americans, small business, and entrepreneurs to subsidize the export of the large corporations: it is also immoral. In fact, this redistribution from the poor and middle class to the wealthy is the most indefensible aspect of the welfare state, yet it is the most accepted form of welfare. Mr. Speaker, it never ceases to amaze me how members who criticize welfare for the poor on moral and constitutional grounds see no problem with the even more objectionable programs that provide welfare for the rich…. |
Perhaps the largest section of “corporate welfare,” if the phrase is warranted, is Agribusiness (ie, large farming). Critics of these agricultural subsidies charge that it is unfair to call something “welfare” when it goes to an African-American female, for example, but then to call them “subsidies” when it goes to a white farmer. As well as the article below, check out this critique of Farm Subsidies .
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Farm Program Pays $1.3 Billion to People Who Don't Farm By Dan Morgan, Gilbert M. Gaul and Sarah Cohen Washington Post Staff Writers, July 2, 2006 EL CAMPO, Tex. -- Even though Donald R. Matthews put his sprawling new residence in the heart of rice country, he is no farmer. He is a 67-year-old asphalt contractor who wanted to build a dream house for his wife of 40 years. Yet under a federal agriculture program approved by Congress, his 18-acre suburban lot receives about $1,300 in annual "direct payments," because years ago the land was used to grow rice. As Congress prepares to debate a farm bill next year, The Washington Post is examining federal agriculture subsidies that grew to more than $25 billion last year, despite near-record farm revenue. Matthews is not alone. Nationwide, the federal government has paid at least $1.3 billion in subsidies for rice and other crops since 2000 to individuals who do no farming at all, according to an analysis of government records by The Washington Post. Some of them collect hundreds of thousands of dollars without planting a seed. Mary Anna Hudson, 87, from the River Oaks neighborhood in Houston, has received $191,000 over the past decade. For Houston surgeon Jimmy Frank Howell, the total was $490,709. "I don't agree with the government's policy," said Matthews, who wanted to give the money back but was told it would just go to other landowners. "They give all of this money to landowners who don't even farm, while real farmers can't afford to get started. It's wrong." The checks to Matthews and other landowners were intended 10 years ago as a first step toward eventually eliminating costly, decades-old farm subsidies. Instead, the payments have grown into an even larger subsidy that benefits millionaire landowners, foreign speculators and absentee landlords, as well as farmers. Most of the money goes to real farmers who grow crops on their land, but they are under no obligation to grow the crop being subsidized. They can switch to a different crop or raise cattle or even grow a stand of timber -- and still get the government payments. The cash comes with so few restrictions that subdivision developers who buy farmland advertise that homeowners can collect farm subsidies on their new back yards. The payments now account for nearly half of the nation's expanding agricultural subsidy system, a complex web that has little basis in fairness or efficiency. What began in the 1930s as a limited safety net for working farmers has swollen into a far-flung infrastructure of entitlements that has cost $172 billion over the past decade. In 2005 alone, when pretax farm profits were at a near-record $72 billion, the federal government handed out more than $25 billion in aid, almost 50 percent more than the amount it pays to families receiving welfare. The Post's nine-month investigation found farm subsidy programs that have become so all-encompassing and generous that they have taken much of the risk out of farming for the increasingly wealthy individuals who dominate it. The farm payments have also altered the landscape and culture of the Farm Belt, pushing up land prices and favoring large, wealthy operators. The system pays farmers a subsidy to protect against low prices even when they sell their crops at higher prices. It makes "emergency disaster payments" for crops that fail even as it provides subsidized insurance to protect against those failures. And it pays people such as Matthews for merely owning land that was once farmed. |
Globalization and Outsourcing The United States used to be virtually a world unto itself. With the exception of sugar and rum from the Caribbean and some finished goods from England, the United States grew or manufactured almost everything it consumed. Over the course of the 20th century, however, more and more of America’s goods and services were exchanged, in both directions, on the international market. Imports and exports became considerably more central to the U.S. economy.
The American economy has undergone a radical transformation in the past few decades. First, the U.S. witnessed a rapid transition from manufacturing to service-oriented business. Industrial factories closed down to relocate overseas, and imports became more common. The epitome of this phenomenon, at least symbolically, is Wal-Mart, where 70% of its products are imported from China (although this may be changing now).
In the past decade, this trend toward economic integration has accelerated in a process often termed “globalization.” Within globalization, there is a smaller, separate trend towards “outsourcing,” which means the contracting of workers in lower-wage countries. The North American Free Trade Agreement (NAFTA) integrated the U.S., Canada and Mexico economically. Then, the rise of China as an industrial power meant that cheaply-produced Chinese goods could replace more expensive American ones. Because China represents such a large portion of U.S. exports, this means that the U.S. is exporting far less than it is importing, overall. Whether or not this is good or bad (for the U.S.) is a point of debate among economists.
Some economists, like Thomas Friedman, tend to see the positive side of globalization. While the U.S. may lose manufacturing jobs, even as U.S. companies relocate overseas or use contracted labor (outsourcing), it gains jobs in service and in high-tech research.
Other economists tend to see a general hollowing out of the American economy in all sectors. First, they say, manufacturing jobs were offshored, and now, they claim, service and information jobs are also moving overseas. These economists point to the fact that personal debt in the United States is at record levels, and that growth in the U.S. domestic economy largely comes through debt spending.
Perhaps the best example of how globalization and outsourcing works (or doesn’t) is Wal-Mart, which now accounts for about 10% of the U.S. Gross Domestic Product. A decade ago, many of these goods were produced somewhere in the U.S., but production has shifted to other countries with cheaper labor, and the products have been imported. Wal-Mart argues that its stores provide customers with high-value and low-cost goods, that they create jobs, and that they stimulate the economic activity of their adjacent areas, adding to overall economic growth and prosperity. By some estimates, Wal-Mart saves consumers some 200 billion dollars a year. Besides, Wal-Mart is a private company, a corporation, and its primary obligation is to make profit for stockholders.
Critics of Wal-Mart tend to argue that the chain is replacing “Mom-and-Pop” stores, hollowing out the economy and mistreating its workers with low-pay and low-benefit jobs, sometimes even violating codes of employment. They make counter-claims much like the one below, included here:
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Excerpt from Anti-Wal-Mart Groups Stop Wal-Mart! Introduction Wal-Mart has become recognized as a leading destructive economic power in the U.S. and abroad. Where it establishes stores, other retail stores are forced to close, wage and benefit rates for workers are lowered in the area, the rights of workers to organize are abused, and local communities have to pick up the costs of these abuses in many different ways. In the face of these revelations, Wal-Mart has launched an aggressive public relations campaign to create the illusion that the company is a source of good jobs and benefits for workers and communities and a good corporate citizen. Wal-Mart is trying to enter the Chicago market. Some in the City welcome their entry hoping that Wal-Mart will provide jobs in communities desperate for new employment, tax revenues for the city, and low-cost goods for consumers. The New Chicago School opposes the entry of Wal-Mart into Chicago. Wal-Mart will accelerate the de-development of our communities, further drain scarce public resources, and encourage anti-labor actions and sentiment. Chicago needs to stop Wal-Mart from entering our city. Instead, Chicago needs to encourage the development of a High Road retail sector that both meets the needs of consumers as well as builds our communities. http://www.clcr.org/publications/pdf/walmart_impact_analysis.pdf (pg. 5) |
The Wal-Mart controversy also continues to include work-related issues, employment issues.
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Excerpts from Anti-Wal-Mart publicity: The company faces a class action lawsuit on behalf of 1.6 million women workers, alleging rampant employment discrimination at Wal-Mart. The Service Employees International Union (SEIU) has announced plans to spend $25 million a year with the ultimate goal of unionizing Wal-Mart, the largest private U.S. employer. And the company — which has already lost more than 200 site fights — faces an even more-intensified resistance to its efforts to locate new stores, as it increasingly seeks to enter markets in more urban areas. In April, voters in the largely African-American and Latino working class town of Inglewood, California rejected a referendum that would have allowed Wal-Mart to open a Supercenter without being subject to normal municipal reviews. But while on a bit of a public relations defensive, the company remains the colossus of U.S. — and increasingly global — retailing. It registers more than a quarter trillion dollars in sales. Its revenues account for 2 percent of U.S. Gross Domestic Product. The company takes in more than one in five dollars spent nationally on food sales, and market researcher Retail Forward predicts Wal-Mart will control more than a third of food store industry sales, as well as a quarter of the drug store industry, by 2007. Wal-Mart is the largest jewelry seller in the United States, “despite the fact that the prime target market for jewelry — high-income women from 25 to 54 years — are the least likely of all consumers to shop for jewelry in discount channels,” as Unity Marketing notes. Wal-Mart is the largest outlet for sales of CDs, videos and DVDs. And on and on. For two years running, Fortune has named Wal-Mart the most admired company in America. It is arguably the defining company of the present era. The company's business model has relied on new innovations in inventory management, focusing on ignored markets (low-income shoppers in rural areas — though this is now changing), and squeezing suppliers to lower their margins. But it has also relied centrally on undercompensating employees and externalizing costs on to society. A February 2004 report issued by Representative George Miller, D-California, encapsulated the ways that Wal-Mart squeezes and cheats its employees, among them: blocking union organizing efforts, paying employees an average $8.23 an hour (as compared to more than $10 for an average supermarket worker), allegedly extracting off-the-clock work, and providing inadequate and unaffordable healthcare packages for employees. Miller's report's innovation was in documenting how Wal-Mart's low wages and inadequate benefits not only hurt workers directly, but impose costs on taxpayers. The report estimated that one 200-person Wal-Mart store may result in a cost to federal taxpayers of $420,750 per year — about $2,103 per employee. These public costs include: $36,000 a year for free and reduced lunches for just 50 qualifying Wal-Mart families. $42,000 a year for Section 8 housing assistance, assuming 3 percent of the store employees qualify for such assistance, at $6,700 per family. $125,000 a year for federal tax credits and deductions for low-income families, assuming 50 employees are heads of household with a child and 50 are married with two children. $100,000 a year for the additional Title I [educational] expenses, assuming 50 Wal-Mart families qualify with an average of two children. $108,000 a year for the additional federal healthcare costs of moving into state children's health insurance programs (S-CHIP), assuming 30 employees with an average of two children qualify. “There's no question that Wal-Mart imposes a huge, often hidden, cost on its workers, our communities and U.S. taxpayers,” Miller said. “And Wal-Mart is in the driver's seat in the global race to the bottom, suppressing wage levels, workplace protections and labor laws.” Wal-Mart's abuses are giving rise to countervailing efforts, but it is an open question whether the company has amassed such power that it will be able to defeat such initiatives… |
Students should be aware that APUS has an agreement with Wal-Mart to teach its employees in academic areas, such as business and management.
It’s possible to place the Wal-Mart controversy into a larger world-historical perspective, as the next two articles do.
The article below suggests that global competition will become more intense. Thomas Friedman argues that American workers had better get ready to compete in the new global marketplace. When he says the world is now “flat,” he means that the playing field is even between American workers and those overseas:
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It's a Flat World After All By Thomas Friedman Published: April 3, 2005 In 1492 Christopher Columbus set sail for India, going west. He had the Nina, the Pinta and the Santa Maria. He never did find India, but he called the people he met ''Indians'' and came home and reported to his king and queen: ''The world is round.'' I set off for India 512 years later. I knew just which direction I was going. I went east. I had Lufthansa business class, and I came home and reported only to my wife and only in a whisper: ''The world is flat.'' And therein lies a tale of technology and geoeconomics that is fundamentally reshaping our lives -- much, much more quickly than many people realize. It all happened while we were sleeping, or rather while we were focused on 9/11, the dot-com bust and Enron -- which even prompted some to wonder whether globalization was over. Actually, just the opposite was true, which is why it's time to wake up and prepare ourselves for this flat world, because others already are, and there is no time to waste. I wish I could say I saw it all coming. Alas, I encountered the flattening of the world quite by accident. It was in late February of last year, and I was visiting the Indian high-tech capital, Bangalore, working on a documentary for the Discovery Times channel about outsourcing. In short order, I interviewed Indian entrepreneurs who wanted to prepare my taxes from Bangalore, read my X-rays from Bangalore, trace my lost luggage from Bangalore and write my new software from Bangalore. The longer I was there, the more upset I became -- upset at the realization that while I had been off covering the 9/11 wars, globalization had entered a whole new phase, and I had missed it. I guess the eureka moment came on a visit to the campus of Infosys Technologies, one of the crown jewels of the Indian outsourcing and software industry. Nandan Nilekani, the Infosys C.E.O., was showing me his global video-conference room, pointing with pride to a wall-size flat-screen TV, which he said was the biggest in Asia. Infosys, he explained, could hold a virtual meeting of the key players from its entire global supply chain for any project at any time on that supersize screen. So its American designers could be on the screen speaking with their Indian software writers and their Asian manufacturers all at once. That's what globalization is all about today, Nilekani said. Above the screen there were eight clocks that pretty well summed up the Infosys workday: 24/7/365. The clocks were labeled U.S. West, U.S. East, G.M.T., India, Singapore, Hong Kong, Japan, Australia. ''Outsourcing is just one dimension of a much more fundamental thing happening today in the world,'' Nilekani explained. ''What happened over the last years is that there was a massive investment in technology, especially in the bubble era, when hundreds of millions of dollars were invested in putting broadband connectivity around the world, undersea cables, all those things.'' At the same time, he added, computers became cheaper and dispersed all over the world, and there was an explosion of e-mail software, search engines like Google and proprietary software that can chop up any piece of work and send one part to Boston, one part to Bangalore and one part to Beijing, making it easy for anyone to do remote development. When all of these things suddenly came together around 2000, Nilekani said, they ''created a platform where intellectual work, intellectual capital, could be delivered from anywhere. It could be disaggregated, delivered, distributed, produced and put back together again -- and this gave a whole new degree of freedom to the way we do work, especially work of an intellectual nature. And what you are seeing in Bangalore today is really the culmination of all these things coming together.'' At one point, summing up the implications of all this, Nilekani uttered a phrase that rang in my ear. He said to me, ''Tom, the playing field is being leveled.'' He meant that countries like India were now able to compete equally for global knowledge work as never before -- and that America had better get ready for this. As I left the Infosys campus that evening and bounced along the potholed road back to Bangalore, I kept chewing on that phrase: ''The playing field is being leveled.'' ''What Nandan is saying,'' I thought, ''is that the playing field is being flattened. Flattened? Flattened? My God, he's telling me the world is flat!'' |
This next article is critical of globalization, and the author is more protectionist. He believes that the U.S. should not trade with countries that have such low standards of living. Besides, he and other critics imply that so-called “free-trade agreements” are anything but when there are so many the excepted and protected goods – depending on congressmen who insist on certain protections for their districts. Under NAFTA with Mexico, for example, Mexico is not allowed to export as much sugar to the United States as it normally would (in order to protect southern sugar producers).
Furthermore, Bill Bonner, reflecting wider concerns, thinks that too many Americans are losing their competitiveness and that they are going into debt in order to pay for consumer items.
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GLOBALIZATION AND ITS DISCONTENTS by Bill Bonner It is widely believed that the Chinese are eating our lunch. Their factories hum and belch smoke, while ours go silent and send up weeds in the parking lot. This phenomenon is commonly called "globalization." But it is also commonly misunderstood. In the reverie of modern Americans, globalization means the rest of the world sends you things you don't have to pay for. The burden of today's little essay is two-fold. The first part is easy; we point out that anyone who thinks such a thing is a fool. The second point is harder - and more important. The world has been globalized for a long time. An Englishman in 1910 could sit in his parlor off St. James Park and drink tea that came all the way from Ceylon in cups that came all the way from China. Then, putting down his drink, he could pick up a Cuban cigar, put it to his lips...and perhaps sprinkle a few ashes on the carpet that he had bought in Egypt...or the leather boots he had ordered from a shop down the street that sold Italian goods. He could buy stocks in New York as easily as he could pick up oranges from Spain or the latest French novels to make their way across the channel. But as Niall Ferguson points out in the current issue of Foreign Affairs magazine, globalization is not without its disappointments. In 1910, England had been a great world power...and one of the world's greatest economies...for two centuries. But global competition had recently edged the British out of the top spot. American GDP surpassed it at the turn of the century. Germany marched by a few years later. Relatively, England, that "weary Titan," was in decline. Still, why would the English complain? They lived well - perhaps better than anyone else. Even if they didn't, they thought they did. The rest of the world was content too. People liked buying and selling. People in Europe liked globalization, because it brought them oranges in the wintertime. People in the warm latitudes liked it - now they had someone to sell their oranges to. Even then, people spoke of the "annihilation of distance," and assumed that more miles would be destroyed in the years to come. Globalization is nothing more than the extension of the division of labor across international boundaries. Our little village in France has the vestiges of a self-contained community. As recently as the end of WWII, almost everything people needed was produced right there. The farms grew wheat. Farmers raised vegetables...and cows...pigs...chickens. There was a machine shop...a forge...a woodworking atelier. There still remain the 'Versailles' boxes, in which lemon trees were planted. The boxes allowed the trees to be moved into heated space in the winter. Otherwise, they would freeze and die. But as distance was annihilated, commerce in lemons was born. There was no longer any need to plant lemon trees in transportable wooden boxes when the lemons themselves could be shipped, quickly and cheaply, by the millions. One country can produce lemons. Another can produce machine gun cartridges. Individuals...towns...enterprises...regions...can divide up the labor, work more efficiently, and produce more things at lower cost. Everyone involved gets a little richer. There are really only two ways to get what you want in life, dear reader. You can do so honestly...or dishonestly. You can get it by working for it...or by stealing it. You can get it by trade and commerce...or by force and fraud. You can get it by civilized methods...or by barbaric ones. You can get rich by "economic means" or by "political means," as the great German sociologist, Franz Oppenheimer put it. Globalization is merely an elaboration of the economic means of getting things. It requires civilized relationships to make it work; people have to get along with each other in order to trade. They must rely on others - even other people in strange, faraway places - for their daily bread. They must also be able to count on the medium of exchange that they trade goods and services in. If they can't trust the money, they are not likely to want to do business. The end of history has been announced several times. But it never seems to arrive. People always tend to think that what is will remain...that trends in place right now will continue at least indefinitely, and perhaps forever. The odds of anything going wrong, they tell themselves when the going is good, are like the extreme edges of a bell curve - vanishingly small. But people badly "underestimate the persistence of history's traditional side, the rise and fall of empires, the rivalry of regimes, and the disastrous exploits of great men," wrote French historian Raymond Aron. That is to say, they tend to ignore the political means that tend to mess things up...and the rare, fat tail events that make history interesting. Such a fat tail event happened in 1914. A European war disturbed nearly 100 years of peace and progress. People thought the war could not happen. And if it did happen, they said, it would be short and sweet. They were wrong on both points. Globalization had entered a shrinking phase. Then, on April 2, 1917, Woodrow Wilson stood before Congress and announced that the world's biggest economy was about to shift to "political means" to get what it wanted. Instead of merely doing business with the Entente powers, America, too, was going to get involved in killing people. This day marked not only another big setback for globalization...it also establishes a frontier for where one empire ended and another began. Britain ceased being the world's hegemonic imperial power. Henceforth, the United States was the cock of the walk...the Alpha nation...the biggest damned bull in the field. There are times when civilization goes forward. And there are times when it goes in the other direction. Woodrow Wilson slammed the United States into reverse in 1917. It has been backing up ever since, in the sense that Americans rely more on force and fraud to get what they want. Gun-toting soldiers now defend America's many supposed interests all over the world - even in places where America seems to have no interests. The U.S. government takes far more of its citizens' money than it did in 1917...and provides detailed instructions to Americans on such a wide variety of matters that one can scarcely toss a chicken out the window or blow up an outhouse without asking permission of the authorities. But we're not complaining. For while the U.S. Empire was growing, so was world trade. In the free world until 1989...and now almost everywhere...a "pax dollarum" greatly aided the cause of globalization throughout the second half of the 20th century. But this new globalized commerce has a fraudulent side to it. The hegemonic power is using political means, even while it shops. During the last big boost in the division of labor, in the 19th century up until 1914, the money in which transactions were calibrated was backed by gold. No country - not even an imperial one - could cheat. If a country consumed more than it produced, other countries found themselves with surpluses of the laggard nation's currency. They then could ask for gold in settlement. Gold was real, the ultimate money. When a nation's gold horde was in danger, it quickly adjusted its policies to correct the imbalance. The dollar, on the other hand, is merely a piece of paper, backed by nothing more than the full faith and credit of the United States treasury. How good a promise is that? No one knows for sure. Niall Ferguson explains why it may be worth less than many think: "A rising proportion of Americans may consider themselves to have been 'saved' in the Evangelical sense, but they are less good at saving in the economic sense. The personal savings rate among Americans stood at jut 0.2 percent of disposable personal income in September 2004, compared with 7.7 percent less than 15 years ago. Whether to finance domestic investment (in the late 1990s) or government borrowing (after 2000), the United States has come to rely increasingly on foreign lending. As the current account deficit has widened (it is not approaching 6% of GDP), U.S. net overseas liabilities have risen steeply to around 25% of GDP. Half of the publicly held federal debt is now in foreign hands; at the end of August 2004, the combined U.S. Treasury holdings of China, Hong Kong, Japan, Singapore, South Korea, and Taiwan were $1.1 trillion, up by 22% from the end of 2003." The odd thing about the spurt of globalization in the last five years is that it's so lopsided. The U.S. takes...but it doesn't give. It borrows...but it doesn't pay back. It buys...but it doesn't sell. It imports...but it doesn't export. The only reason foreigners put up with those shenanigans is because they receive paper currency in payment. They assume their dollars will be as valuable in the future as they are now. They assume the trends of the last 50 years will continue unchanged. They assume that no terrorists will knock off an archduke...and no fat tail will plop itself down in the currency markets. They assume that someone, somewhere, had the situation under control. And yet..."If the private market - which knows that with high probability the dollar is going down someday - decides that that someday has come and that the dollar is going down now," writes Brad DeLong, "then all the Asian central banks in the world cannot stop it." What will happen when the world figures out that the United States is pulling a fast one? We don't know. But like the period following the sinking of the Lusitania, we're sure it will make the history books. http://dailyreckoning.com/globalization-and-its-discontents-3/ |
And the debate continues… Check out this article on Globalization and Poverty . As for outsourcing, check out this article on Fighting Back .
Conclusion The United States has been the site of a dynamic and expansive economy for over two centuries. It remains dynamic, but there are new controversies regarding the relative impact of globalization, the deficit, and other economic trends.
