The Economy Summed Up: Pay Any Price, Bear Any Burden, to Avoid Creating Jobs

[Dave Farber <dave () farber net>]

Delivered-To: dfarber+ () ux13 sp cs cmu edu
Date: Tue, 09 Mar 2004 21:51:20 -0800
From: Dewayne Hendricks <dewayne () warpspeed com>


The Economy Summed Up: Pay Any Price, Bear Any Burden, to Avoid Creating Jobs
<http://markschmitt.typepad.com/decembrist/2004/03/the_economy_sum.html>

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 
insurance.

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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