CNN Host's Attempt to Explain the U.S. Economy Was So Bad I Started Yelling at the TV
Honestly, I don't usually talk back to the TV. But I couldn't contain myself during Poppy Harlow's December 10 interview with John Feltner, the United Steelworkers vice president of the Rexnord local union where 300 jobs are moving from Indianapolis to Mexico.
In discussing the move, Harlow twice resorted to the much repeated trope that the loss of American manufacturing jobs is really about automation and technology.
HARLOW: What is the number-one thing you would like to see the incoming administration do that you think will help people in your situation? Because, you know, Donald Trump points to global trade as being the reason that your jobs are going away. That's not all of it. A lot of it is, as you know well, automation and technology.
FELTNER: These companies are leaving to exploit cheap labor. That's plain and simple. If he can change those trade policies to keep those jobs here in America, that's what we need. We need American jobs, not just union jobs.
HARLOW: But you agree it won't save all of them, because of automation, because of technology.
Please Poppy, come off it! Feltner is right. Offshoring is about the rush to cheap labor, not about automation and new technology. The move to cheaper labor in Mexico, in fact, allows corporations to avoid investing in new technologies. Rexnord and Carrier are moving the same old technologies to Mexico, piece by piece.
Ever hear of Germany?
Instead of regurgitating meaningless economic platitudes, newscasters and pundits should confront some facts about Germany's extensive manufacturing sector.
Fact #1: Germany uses the most advanced technologies in the world.
Fact #2: Manufacturing workers in Germany earn much more than their U.S. counterparts: 44.7% more in textiles, 44.6% more in chemicals, 34.2% more in machine tools, and 66.9% more in the automobile industry.
Fact #3: Manufacturing jobs make up 22% of the German workforce and account for 21% of the GDP. U.S. manufacturing jobs make up only 11% of our workforce and only 13% of our GDP.
Fact #4: The economic gods either speak German or the Germans are doing things differently from their U.S counterparts.
Rather than divine intervention, German manufacturing depends on producing high-quality products that are so good people the world over are willing to pay a premium for them. The most sought-after, high-end motor vehicles (Mercedes, BMW, Audi) and kitchen appliances (Bosch, Miele) are produced by German companies using highly trained, well-paid workers and the most advanced technologies.
The German manufacturing juggernaut depends on vast investments in innovation (by their government), in research and development (by their firms), and in worker education and training (by both the government and the firms).
U.S. addicted to stock buybacks
American manufacturers have chosen a different path. Their CEOs grow wealthy by financially strip-mining their own companies, aided and abetted by elite financiers who have only one goal: extracting as much wealth as possible from the company while putting back as little as possible into production and workers.
The heroin driving their addiction is stock buybacks—a company using its own profits (or borrowed money) to buy back the company's own shares. This directly adds more wealth to the super-rich because stock buybacks inevitably increase the value of the shares owned by top executives and rich investors. Since top executives receive the vast majority of their income (often up to 95%) through stock incentives, stock buybacks are pure gold. The stock price goes up and the CEOs get richer. In this they are in harmony with top Wall Street private equity/hedge fund investors who incessantly clamor for more stock buybacks, impatient for their next fix.
For the few, this addiction is the path to vast riches. It also is the path to annihilating the manufacturing sector. (For a definitive yet accessible account see "Profits without Prosperity" by William Lazonick in the Harvard Business Review.)
Wait, wait, isn't this stock manipulation? Well, before the Reagan administration deregulated them in 1982, stock buybacks indeed were considered stock manipulation and one of the causes of the 1929 crash. Now they are so ubiquitous that upwards of 75% of all corporate profits go to stock buybacks. Over the last year, 37 companies in the S&P 500 actually spent more on buybacks than they generated in profits, according to Buyback Quarterly.
Little wonder that stock buybacks are a major driver of runaway inequality. In 1980 before the stock buyback era, the ratio of compensation between the top 100 CEOs and the average worker was 45 to 1. Today it is a whopping 844 to 1. (The German CEO gap is closer to 150 to 1.)
Germany holds down its wage gap, in part, by discouraging stock buybacks. Through its system of co-determination, workers and their unions have seats on the boards of directors and make sure profits are used to invest in productive employment. As a result, in Germany stock buybacks account for a much smaller percentage of corporate profits.
Between 2000 and 2015, 419 U.S. companies (on the S&P 500 index) spent a total of $4.7 trillion on stock buybacks (annual average of $701 million per firm). During the same period, only 33 German firms in the S&P350 Europe index conducted buybacks for a total of $111 billion (annual average of $211 million per firm). (Many thanks to Mustafa Erdem SakinÃ§ from the Academic-Industry Research Network for providing this excellent data.)
Let’s do the math: U.S. firms as a whole spent 42 times more on stock buybacks than German firms!
Little wonder that our manufacturing sector is a withering appendage of Wall Street, while German manufacturing leads the global economy.
So why does the media consistently use automation/technology to explain the loss of well-paying manufacturing jobs?
To be fair, Poppy is not alone. Virtually every elite broadcaster, journalist, pundit and columnist claims that the loss of good-paying, blue-collar jobs is somehow connected to new technologies. How can they ignore the fact that in Germany advanced technologies and good-paying jobs go hand in hand?
Part of the answer is that it is reassuring for elites to believe that job loss stems from complex "forces of production" that are far removed from human control. The inevitability of broad economic trends makes a pundit sound more sophisticated than the unschooled factory worker who thinks the company is moving to Mexico just because labor costs one-tenth as much.
Technological inevitability also fits neatly into the idea that runaway inequality in our economy is akin to an act of God, that globalization and technology move forward and no one can stop the process from anointing winners and losers. The winners—the richest of the rich—are those who have the skills needed to succeed in the international technological race. The losers—most of the rest of us without the new skills—see our jobs vaporized by technology and automation.
Too bad. Nothing to be done about it. Stop whining. Move on.
In other words, rising inequality can't be fundamentally altered.
Sinclair’s law of human nature
Or maybe there's another explanation suggested by Upton Sinclair's famous adage: "It is difficult to get a man to understand something, when his salary depends on his not understanding it."
The newscasters, the pundits, the top columnists and recidivist TV commentators—nearly all of them are doing very well. They may not be billionaires, but they live in a rarefied world far removed form the worries felt by Mr. Feltner and his brothers and sisters at Rexnord. From their elite vantage point, the status quo may have problems, but it is treating them remarkably well. So quite naturally they are drawn to narratives that justify their elite positions; that altering runaway inequality and its privileges would be futile at best and even harmful to society as a whole. How convenient.
Then again, American media firms are no strangers to stock buybacks. Time Warner, which owns CNN, Poppy's employer, instituted a $5 billion stock buyback in 2016. That's $5 billion that, for example, didn't go to news investigations about the perils of stock buybacks. We don't know if Poppy Harlow receives stock incentives, but her top bosses certainly do.
What about NBC/MSNBC? Comcast is the parent company which also instituted a $5 billion stock buyback in 2016.
Brother Feltner is right. Corporations are moving offshore to cut their wage bills. But they are not using that money to reinvest in their companies to improve the product and train the workforce. Instead, they are offshoring to gain cash flow to finance their fix. They want more stock buybacks which in turn enrich top executives and Wall Street investors. Automation and technology have nothing to do with this perilous addiction.
So, I'll stop yelling at Poppy, once she starts covering stock buybacks.