History will record 2010 as the year Washington became "business friendly."
Not that it was all that unfriendly before. Some would say the bailouts of Wall Street, AIG, GM, and Chrysler were about as friendly as it can get. In addition, Washington gave windfalls to drug companies and health insurers in the new health bill, subsidies to energy companies in the stimulus package, and billions to domestic and military contractors.
But for corporate America it still wasn't friendly enough. Before the midterm elections, Verizon CEO and Business Roundtable chair Ivan Seidenberg accused the president of creating a hostile environment for investment and job-creation. In the midterms, business leaders overwhelmingly threw their support to Republicans.
So the White House caved in on the Bush tax cuts for the wealthy, and is telling CEOs it will be on their side from now on. As the president recently told a group of CEOs, the choice "is not between Democrats and Republicans. It's between America and our competitors around the world. We can win the competition."
There's only one problem. America's big businesses are less and less American. They're going abroad for sales and employees. That's one reason they've showed record-breaking profits in 2010 while creating almost no American jobs.
Consider one of most popular Christmas products of all time -- Apple's iPhone. Researchers from the Asian Development Bank Institute have dissected an iPhone whose wholesale price is around $179.00 to determine where the money actually goes.
Some shows up in Apple's profits, which are soaring.
About $61 of the $179 price goes to Japanese workers who make key iPhone components, $30 to German workers who supply other pieces, and $23 to South Korean workers who provide still others. Around $6 goes to the Chinese workers who assemble it. Most of the rest goes to workers elsewhere around the globe who make other bits.
Only about $11 of that iPhone goes to American workers, mostly researchers and designers.
Even old-tech American companies made big money abroad in 2010 -- and created scads of jobs there. General Motors, for example, is now turning a nice profit and American investors bullish about its future.
That doesn't mean GM will be creating lots more blue-collar jobs in America, though. 2010 was a banner year for GM's foreign sales -- already two-thirds of its total sales, and rising. In October, GM became first automaker to sell more than 2 million cars a year in China. The company is now making more cars in China than in the United States.And GM has just signed a deal with its Chinese partner to try to crack India's potentially huge auto market.
Meanwhile, back home in the U.S., GM has slashed its labor costs. New hires are brought in at roughly half the wages and benefits of former GM employees, under a two-tier wage structure accepted by the United Auto Workers. Almost all GM's U.S. suppliers have also cut their payrolls.
It's much the same even for America's biggest retailers. 2010 wasn't an especially good year for Walmart in the United States. Its third-quarter sales fell, as U.S. shoppers continued to hold back.
But Walmart International is contributing mightily to its bottom line. Its UK business, Asda, will be adding 7,500 new jobs next year. Walmart is also doing well in Japan and Brazil, and hiring like mad in both countries.
So when President Obama tells American CEOs our biggest challenge comes from abroad, you've got to wonder. The leaders of American business are already abroad, and doing quite nicely.
Just after the midterm elections, the President's chief economic advisor, Larry Summers, told a group of top U.S. CEOs that the election was partly a "rejection of elites... that were seen as more citizens of Davos than of their countries." American CEOs, Summers warned, should "think very hard about their obligations as citizens of this country."
Yes, they're citizens. But first and foremost they're CEOs. And CEOs have to show profits - wherever those profits come from. Under American-style capitalism, profits matter. Jobs don't.
2010 was the year Washington became even more "business friendly." The result has been more and better jobs -- but not in America.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
No summary of 2010, visual or otherwise, would be complete without an extensive overview of what pundits call Monetary Stimulus, quantitative easing or Large Scale Asset Purchases, and the peasantry calls, just as correctly (with a few footnotes), the printing of money. If there are two words that define what we had an absence and an abundance of in the past year, those would be jobs, and money. As some of the key jobs-related charts were presented yesterday, below, once again courtesy of BusinessWeek, are the main charts that among other things demonstrate the various currency manipulation playbooks, the price of gas in bacon and other products, the annotated strength of the dollar through time, and what is actually printed when the Fed does print money.
The first chart shows the progression of dollar strength (and weakness) with an annotation for contemporaneous global events. What is ironic is that while everyone realizes the world is still in a very week position, the core debate over who is weaker - Europe or the US, is sure to provide many hours of entertainment in 2011. And as a bonus, the man whose policies, together with those of Bernanke, are instrumental in just how weak the dollar gets, is presented in his key natural states: from lying just every so slightly, to lying a lot, to lying profusely to save his life, to lying at such a rate, it would make those whose pants are burning, blush with envy. And now you will know how to distinguish the four...
The next chart deals with the actual money printing, but not in an deeply philosophical manner, one in which hours of debate are wasted over whether trillions in excess reserves are actually printed money (even though the last time someone acquired USTs, MBS, and soon Munis and ETFs, with pixie dust, the legal consequences were not all that palatable). Of the just over $300 billion in actual currency printed in 2010, the vast majority was in $100 bills, next up was $20s, followed by $5s, $10s, and lastly, singles. Not a single $50 bill was printed. Also noted: the amount of cash in corporate America. Of particular interest: GM has more than half of its market value, or $27.5 billion sitting in cash. Lastly, and this not come as a surprise to many, the money multiplier: the money supply divided by the monetary base, is at near record lows, courtesy of the $1 trillion in excess reserves.
Another popular meme in 2010 was pricing X in Y, most often the stock market in gold, in which basis it is still down for the year, as gold (not to mention silver), despite the short memory of many, is by and far the best performing asset class of 2010. Those who followed our advice in early 2010 to avoid stocks and to invest in gold, are ahead of most. The chart below takes a comic approach to this relative performance, showing how much the price of gas changed when priced in other "currencies."
Last, and probably most interesting, is the graphic presentation of the currency manipulator playbook: in a world in which Ben Bernanke knows very well he has little competition when it comes to doing as he chooses with the world's reserve currency (for now), other sovereigns are forced to come up with their unique responses. The playbook below shows all the various defensive tactics adopted so far. Luckily, few offensive plays have been established to date. We doubt that will be the status quo for a long time.
And as John Taylor and many others have pointed out, now that the fiscal "stimulus" of the payroll tax has been exhausted in a few short weeks courtesy of the jump in crude oil, and any further fiscal intervention not likely to occur unless Congress wants another incumbent bloodbath next time around, as Americans are tired of subsidizing banker lifestyles, expect to see many additions to the FX manipulation playbook, as the year progresses and monetary intervention continues to be the only direct way of making sure every new banker bonus year is a record one is via the Fed and its ongoing dollar printing-cum-debasement. That said, should the bankrupt European house of cards continue to wave a white flag of surrender every 3 months, the race to the bottom may not have a clear winner well after 2011 is also history.
All charts courtesy of BusinessWeek
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