SUNDAY, DECEMBER 11, 2011

OPINION & COMMENTARY

The Corporate Divide

CAMBRIDGE, Massachusetts

Acore problem for Western nationsis that many oftheir large companiesare booming even as those corporategood times are not reflected in societieswith high unemployment anddiminishing wages.

The interests ofmultinationals and the countries thatbirthed them have diverged.In effect, corporations have theflexibility to navigate a globalizedworld through the border-hoppingdeployment of resources while leadersof individual countries are hobbled by frontiers.

The thing about a wired world of 7 billion people is that national policy making increasingly -looks like a failing exercise in trying to catch up with and regulate forces unleashed by their creativity.

The numbers are startling. American-based multinational corporations’ added 683,000workers in China during the 1999-2009 decade, a 172 percent increase, and 392,000 workers in India, a 542 percent increase.

Across the world, these American multinationals added 2.9 million workers in the same decade, including 477,500 in Latin America, while cutting 864,600 workers in North America, according to figures from the United States Department of Commerce.

Many factors are at work here. The American companies are seeking to cut labour or costs, but they also want to be closer to a rapidly expanding middle class in developing economies where the talk is of boom times rather than of eroding hope.

They have derived significant tax benefits through their global dispersion. And while cutting jobs at home in the 2008 recession, they have discovered that technology enabledthem to do without a lot of those workers permanently.

Add to all this the cheapest borrowing ever (if you are able to qualify for a loan) and it's understandable that American corporations use that easy money for capital investment rather than for jobs. The figures from the Commerce Department indicate that American companies still allocate $2.40 in capital spending in the United States for every dollar spent abroad.

As my colleague Floyd Norris has reported, United States corporate profits after taxes were estimatedto be $1.56trillion, at an annual rate, during the third quarter of this year,or 10.3percent of the size ofthe economy,up from 10.1 percent in the second quarter. Never until 2010 was there a quarter in which the corporate share was as high as 9percent.

Even more startling, overall corporate Profit is 15 before taxes were up 35 percent compared to the quarter just prior to the recession of 2007-9 where as wage and salary income was up just-1.8percent.

The picture is clear enough: sharply improved corporate performance no longer generatesany significant corresponding addition to American jobs or wages.

Wage and salary income now amounts to less than 43 percent of the United States economy; in the six decades before the recession, that figure was never below 45 percent.

The picture is not much different in France where leading multinational corporations - at least those outside the financial sector - have been recording record profits while unemployment has risen to over 9 percent.

In Britain, reports of huge bonuses for top corporate management have provoked an understandable outcry, but they often (not always) reflec tstrong company performance.

All these numbers translate as a serious, long-term problem for Western societies. Remedies short of global governance - and that's a couple of centuries off at least - are not easy to find. Clearly something more can be done in the area of corporate tax codes to ensure that companies are not deriving massive fiscal advantage on top of everything else by taking their operations overseas.

Beyond that, it's important to enlist corporate leaders in national efforts to address employment and wage issues.

Attacking the rich and hurling insults at them may give momentary gratification, but it won't resolve anything.

Germany has done better than any other Western nation in involving corporations and labour unions when formulating industrial policies that help keep jobs at home.

In the end, it is in the interests of multinationals to be sensitive to these questions. The Occupy movement demonstrated how rage is growing across the West. It's worth noting that before corporate profits in America surged to over 10 percent of the economy recently, the previous record annual share was 8.98 percent in 1929.

We all know what happenedright after that.