Thursday, September 16, 2010

The Writing Is on the Wall

Here is a bit from a post by Robert Reich in his blog that notes that US corporations fall into two camps. One camp that gets most of its revenue inside the US is favourable to measures to shore up incomes of the middle and lower classe. The other group, that mostly gets all of its growth from sales overseas, is lined up with the Republicans in wanting to cut deficits and worry about inflation and not jobs:
Some giant American corporations depend on a buoyant American economy and a world-class industrial base in the United States. Others are far less dependent. What comes out of Washington in the next few years will reflect which group has most political clout — especially if Republicans take over the House and capture more of the Senate this November.

The first group includes national telecoms like Verizon and AT&T that need a prosperous America because most of their sales are here. Same with finance companies like Bank of America and Travelers Insurance whose business strategy has been built around U.S. consumers. Ditto certain giant chains like Home Depot. Naturally, all these companies were especially hard hit by the Great Depression and its devastating impact on American consumers.

The second group includes companies like Coca Cola, Exxon-Mobil, Hewlett-Packard, Intel, and McDonalds, that get substantial revenues from their overseas operations. Increasingly this means China, India, and Brazil. Ford and GM are still largely dependent on US sales but becoming less so. GM sold more cars in China last year than in the US. Not surprisingly, American companies that are less dependent on American consumers have been showing the biggest profits.

Wall Street gets this. Viewing the 30 giants that make up the Dow Jones Industrial Average, analysts are predicting that the 10 with the largest portion of sales inside the U.S. will show average revenue gains of just 1.6 percent over the next year, while the 10 with the largest portion of their sales abroad will grow by an average of 8.3 percent.

So what does this mean for politics? Big companies hedge their bets and support both Republicans and Democrats. But in my experience, companies in the first group are more responsive to tax, spending, and monetary policies that cause unemployment to drop and wages to grow, and less obsessed by inflation and deficits, than are companies in the second group. The former are also more supportive of new investments in infrastructure and education, which improve U.S. productivity over the longer term.

The problem is, more and more big companies are moving into the second category because that’s where the markets and the money are.
Go read the whole post.

I keep thinking about the similarities to the Gilded Era and now. Both were times when businesses grew much bigger and they were a time where the few rich became very, very rich. The biggest difference was that from 1890-1920 there was an organized left in the US that fought hard for rights of the bottom 80% of society. Today there is no political party that seems interested in the bottom 80%.

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