Why millions of jobs aren't coming back

The era of big labor is over.

By MSN Money Partner Aug 10, 2012 11:38AM

By Kevin Mellyn


Though recent jobs numbers seem to suggest improvement, the underlying data tells a different story. The official statistics vastly underestimate real lack of work that Americans are feeling.

 

One of the key issues in November is which candidate can credibly promise the voters he can create jobs. The problem is that anyone making such promise is not telling the truth.

 

One of the odd notions that both political parties pay homage to is that government at any level can “create jobs” other than by hiring people itself or subsidizing others to do so. The historical fact is that our modern concept of employment only dates back to around 1880 and has been dying since about 1980, along with the industrial economy that brought it into being in the first place.

 

The model of full-time secure employment in the private sector (it had always been common in the public sector) grew up in the late 1800s along with heavy manufacturing industries and utilities that needed skilled labor (like machinists or railroad engineers) rather than “hands” to do low-skill tasks (mill girls, longshoremen). Political institutions adapted to the big public companies that employed more and more of the population through both regulation of labor conditions and support of unionization. Companies tried to keep workers cheap and docile but in the end had to bargain with labor and appease politicians.

 

The result was an Iron Triangle: big business, big government, and big labor. The Iron Triangle focused on the political process in Washington to divide the loaves and fishes brought forth by unquestioned American dominance of the world economy. Conflict and compromise in Washington assumed that most people would work in large, regulated enterprises that could be compelled or induced to provide them with things like pensions, health insurance (a relic of World War II wage-and-price controls), and other protections. The list could always be expanded because American enterprises (and, indirectly, labor) were really only competing against other high-cost developed countries, most with higher taxes and more elaborate social provision and protections for workers.

 

In fact, only about a third of mankind was involved in the global market economy until the late 1980s when countries as diverse as China, India, and the former Soviet Union became to one degree or another market economies. Technology had in the meantime greatly enhanced worker productivity and, crucially, the ability of firms to contract for inputs on a global basis. The good news was that over a billion people worldwide escaped grinding poverty. The bad news was that for the first time since World War II, American workers faced a vast “reserve army of labor” capable of driving down their living standards to a global norm. This of course is why so many people in the developed world hate and fear what in loosely called "globalization."

 

Logically, these profound changes in economic reality should have led us to think beyond a political and institutional framework formed in the New Deal. In a dynamic world of global competition, high-cost producers are doomed. U.S. industry painfully restructured to confront this reality a long time ago. High wage union jobs in the private sector have been declining for a generation. However, the massive growth of consumer credit since the 1980s served as a huge bandage to cover the loss of earning power by American workers.

 

Basically, consumer debt and a huge run-up in house prices fed by cheap and easy mortgage finance became a substitute for real income, sustained a consumption driven economy and created an illusion of prosperity. Blame the banks for our troubles if you must, but the credit-driven economy that blew up in 2008 suited everyone in the old Iron Triangle just fine. The financial market meltdown of 2008 however ripped the bandage off a very old and deep wound of a hollowed-out economy and a profoundly unequal and divided society.

 

In this election year, both contenders talk as if Washington can restore the world we have lost, the brief century when secure, well-paid employment was both possible and expected. What is really needed is a complete rethink of our Iron Triangle era institutions, from public education to retirement and everything in between, especially government itself. For what’s coming is a world in which most workers will be in effect contractors or temps, and self-employment will become the norm.

 

Kevin Mellyn is an international banker and consultant at MasterCard Advisors. He is the author of Broken Markets: A User's Guide to the Post-Finance Economy (published by Apress, July 2012).

449Comments
Aug 12, 2012 10:25PM
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A lot of ideas floating around here and i have a few thoughts. The business model this country has created revolved around convincing (selling) folks on buying more, bigger, newer, and better. Products were designed with limited life spans and repair has be discouraged. 

To those who say you must live below your means, you are correct and if everyone had done that the economy today would be roughly 70 percent of what it is. Buying on credit made the economy hum didn't it. The problem showed up when the consumer's ability to earn decayed.

To those who say you should start a business, the number one job of any business is to create a customer. Today you may search long and hard to find a customer who has a need that they can afford to fulfill.

If retail stores sell only products that are made elsewhere, the locals will have to move to that elsewhere to find work. If you only support the china trade, the day will come if you live long enough where you will either move there to survive or learn the language to beg mercy from them here.

The wealthy at some point in sometime past, put in place a supply to a need that the common folk supported. The common folk remained common by consuming the goods voluntarily. The wealthy grew from the toils and profits of their business. They have it because you gave it to them. Those monthly outlays for luxuries that became necessities, drained your hope for a better life. 

When you want to blame someone for your plight, some responsibility ultimately falls on you. Ignorance is still bliss and participation is still optional. How much has your computers and internet and smart phones cost you already in your life. How much will they drain you till you die. Some folks use the free access at the library. But you pay for the convenience?
Aug 12, 2012 2:01PM
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How can we deal with this globalization issue?  Change the business tax structure to favor companies that hire US workers and tax companies more who hire overseas workers.  This can be done WITHOUT hindering free trade.  Simply eliminate the job-killing business payroll tax and replace it with a value added tax.   Businesses would no longer be penalized for hiring US workers.  US and foreign businesses would be taxed on an equal basis.


Aug 10, 2012 3:14PM
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The fact that Americans are unfairly made to compete against lower costs of living with third world countries, as well as gross misrepresentation in our country is why globalization is forced on the average U.S. citizen since Clinton.

 

Corporations and big banks have so much political clout in our U.S. government that all laws are catered to them and not the welfare of the U.S. citizen.

 

Without Campaign Finance Reform where non living entities CANNOT buy political parties and puppet candidates with thier wealth, there is NO hope for our country or Middle Class. Good bye to the American dream, it has been stolen from us.

Aug 12, 2012 5:32PM
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Concise and right to the point.  The problem is no one wants to confront the change that has occurred. With lowered expectations based on the new reality, the presidential candidates are
afraid to tell the masses that the future might not be as rosy as it was for our parents generation.  A no win situation afraid  to confront   for fear of losing an election. 
Aug 10, 2012 6:09PM
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So how do we fix this mess?   Do we wait for the politicians to make promises they can't keep!  We have had enough of all that. Personally I get sick of watching these ads where one party totally  trashes the other. GROW UP!! This is a huge crisis in this country. People are starving in our streets, Families are loosing everything. But you would never see that in Washington D.C.  They think everything is just peachy cause they don't feel it, nor to they see it.

 

We need to work together and help each other. Set aside all our differances, because unless we figure this out, and do it quickly None of us are going to make it through this mess!

Aug 10, 2012 12:41PM
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Actually it wasn't a century, but a brief span of 40 years. The era he refers to is the post WWII period where the perfect storm of Europe's destruction, rapid urbanization and improvements in shipping created a period of American economic dominance.

That is gone. Over.

 

Need to look at time prior to WWI when labor had to 'fight' the influx of cheap labor from abroad and rural areas undergoing mechanization. Back when most did low paid back breaking farm work.

Aug 10, 2012 4:34PM
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The problem is so huge, complicated, and intertwined that a few simple political one liners can’t even come close to the true problem. The rich, the entitlements, government bureaucracy and regulations, taxes, immigration, subsidies, military spending, banks, Federal Reserve, stock market, the media, jobs, our evolved political system, and on and on and on. It is the entire system all of it that has become corrupted and broken. We need an Etch-E-Sketch moment back to the Constitution. We need leaders that are focused on providing the leadership and stewardship needed to ensure the survival of our nation, not political pundits following their party line or platform, not focused on buying votes and taking care of their own political aspirations, and not focused on building and taking care of their personal family dynasties. President Obama has proven he is not the one, and it is obvious Mr. Romney isn’t the one either, and both the republican and democratic parties have made it abundantly clear they are a large part of the problem not the solution. The American people need to wake up.

Aug 10, 2012 3:02PM
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A nice history lesson, but it all could have been said in a few words:  Our manufacturing sector has gone to nations whose overall costs are much lower than our own.  We have little choice but to subsidize what's left or impose import tariffs...  Anyone who states otherwise is simply teaching politics and not actually living through economic history.
Aug 12, 2012 11:46PM
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Jobs can come back.  Remember the industrial revolution where there were many un-employed, until T. Roosevelt started soaking  the Robber Barons, which we now call CEO's and Chairman of companies that take hugh salaries and also greater bonuses..  With time,The  child labor laws and other social beneficial laws that helped the average laboring man. World War 1 increased the demand for labor which brought on the roaring twenties  The Income Tax Act was passed around 1913 which levied a high tax on exorbitant wages on the wealthy. Within the last sixty years, this tax has gone down from 91% to 36% plus our congress has passed tax loopholes which enables the extremely wealthy to avoid most of the tax.  Mr. Warren Buffet said that he only paid 15% of his earnings in Tax which was a lesser percentage than what his secretary paid.. Is there something wrong here?.
Aug 10, 2012 5:11PM
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Citizens can create jobs.  When you go to the store, don't use the self-checkout feature.  You'll make the store hire another checker.  My mom was a checker and her income helped 4 kids through college.  Now a machine is the checker and the machine has no kids to put through college, although some unemployed lady out there wishes he had a job so she could help her kids make it through college.
Aug 10, 2012 4:49PM
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OPEN POST:

My fellow Americans, I was born here, received my National Defense Medal, and I pay taxes. I VOTE, and I like to share information from time to time on subjects as important as this; the economic troubles and employment issues dividing fellow Americans across the country NOW.

 

Immigration is not our woe, the "President elect now or several past" are of some blame, BUT it's been the evolution of competition with the whole planet (cheap slave labor, etc.) and combined with unchecked greed by my fellow Americans in corporate Ivory Towers, from Wall Street to Main Street.

 

1. NAFTA was ill structured. In part to agricultural interests and poor choices of subsidized crops, Monsanto political influence since the Regan admin. and among other issues, advanced technology of international transportation systems globally in foreign markets. Since WWII, until the later half of the last century, we owned the planet on developing technology and manufacturing. This led to corporate influence in politics, due to huge profits=huge power influence in "free elections".  **(Prior to this: in the Nixon era: Kaiser learned how to do HMO's and really make huge money off sick and dying Americans/influencing corporate ownership of politicians today. Transferring tax dollars to private corporate pockets via cost savings.) Pretty neat! You get to buy a politician and still come out ahead, and the citizens think they're getting a good deal. Used car salesman trick.

 

2. GATT Treaty: Clinton Admin. This eliminated Bi-lateral trading tariff's from the "cheap labor pools" making the same products now we made. Foreign nations after WWII re-built the infra-structure of manufacturing and began competing, inching their way up the ladder to "BE LIKE USA", or in other words, finally provide stability to feed their starving mouths.

 

3. Technology: Computers and finance are great?! Just ask all the recently super wealthy on wall street who have gambled with others money. NO ETHICS+UNCHECKED GREED=Credit Default Swaps and retirement funds being stolen from innocent American citizens unable to ever recover. Trillions of dollars in taxes to the corporations again! They own the media, so you know it's impossible to get real news now. You're mushrooms and cannon fodder for war machines.

 

4. Put everyone in an endless war over resources due to BIG OIL influence and keep the media pumping the hype on immigrants and RED vs. BLUE state rhetoric and keep getting profits while the tax payer looses and the environment gets worse and the air and water become rancid and hard to clean up, year after year. And year after year, the taxpayer gets less and the corporations get more, like being humans now with voting rights. Wow.

 

The American Dream? or? You decide. Endless war, media fear factories and a polluted planet.

I do have answers.....

 

 

Aug 11, 2012 1:04AM
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we allow i million immigrants a year into the country when about 20% of the people here can't find jobs

that does not make any rational sense. We have between 10 an 30 million illegals in the country . If we started putting the people who hire them in jail they would be gone in a few years .If we can't take care of the people that are here then we don't need any more people.

Aug 10, 2012 4:06PM
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 Most of the reason for jobs being outsourced comes down pure and simple to GREED.  Nowadays if you are loyal to a company it's mostly considered as you being naive, as the execs of many companies only want more from their employees so they can get that new  yacht/car/home etc.

 What these execs forget is that if they continually bring down wages and costs then eventually no-one will be able to afford their goods so they will go out of business.  Companies need an affluent middle class in order to survive and not the other way round.  Unfortunately until the "Too big to fail" mentality is erased they will continue to rely on bailouts whilst rewarding themselves at extravagant rates.
Aug 10, 2012 5:15PM
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Two dark articles in as many days.  Is the worm turning?

 

It is true that the low cost producer wins in today's world because we let them win.  We allow products into this country that are made in conditions we would not tolerate.  No different than Britain buying rice and indigo from South Carolina in the 1700's.  Since it's happening outside our country I guess we have decided it's OK.  Everybody wants that cheap Walmart stuff! 

 

Even so,  technology WILL displace most humans in the workplace.  It has already displaced most of them.  We will someday have the capability to provide for all of society's needs and only have a few people actually working.   The few industries that did require people we foolishly allowed to go overseas.  That helped the third world and screwed us. Now we have a huge and ever growing class of workers for whom there will never be jobs.   Unless we move them out of the cities and back to the farms we are going to have some serious income redistribution problems in the future.    

 

I now live in a small Appalachian town and we are farther down this road than most places.   Big industry is all but gone.  The people that are left mostly work for themselves.   Houses are smaller,  cars are older, clothes are plainer, and expectations are lower.  Get used to it.

 

Better get a skill for catering to the last batch of retired boomers because that's the last generation that's going to have any money.            

 

  

Aug 10, 2012 3:50PM
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 I would suggest a triple blow for the greedy corporations and 1%ers.

 1) As suggested earlier a 15% tax rate for companies producing goods here and 35% tax on goods they make overseas.

 2) A 5% tax rate on all money moved out of the country into foreign banks or trusts.  I would however offer a 2% rebate for money moved back into the country and kept or spent here.

 3) No company executive be allowed to earn more than 50 times the pay of their lowest paid employees.  How they do this would be a choice between cutting greedy execs pay or genuine pay raises for those would really do the work ;)
Aug 12, 2012 5:18PM
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jobs will come back but they will not be well paying kind.
Aug 10, 2012 7:27PM
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Ghost,

 

You keep singing the same song, anyone that isn't prosperous is that way because they are lazy, on the dole, Obama Democrats.  It's just not true, watch the evening news any night of the week and there will be a story about someone who's lost their job then their house and then ... everything.  Look in their eyes and you see shame, despair and zero hope.  They have been forced their by bad and predatory economic policy. 

 

Before deregulation, NAFTA, GAT, dropping of tariffs, lowering taxes on the rich we had jobs in this country we had a relatively stable economy.  As corporations and the 1% got more powerful and trickle down economics became a catch phrase the middle class has become a endangered species in the United States.  We The People need to change that and get back to sound Government Policy that protects the PEOPLE not the Wealthy and Multi-National Corporations.

Aug 13, 2012 1:28AM
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All of this is true. What he isn't saying is that all of this was, and is, orchestrated by a tiny global elite for their own benefit to consolidate ever more power and control in fewer and fewer hands.
Aug 13, 2012 2:08PM
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Any educated person would know that a President cannot and does not control the jobs creation in America. The Blue Bloods of today were given their wealth by their hard working parents who believed in and cared about American workers.

 

The good ole boys who actually built the industries in America are gone. Now we are left with their selfish and spoiled offspring who couldn't care less.

 

 

Aug 10, 2012 7:46PM
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Grey Ghost..............speaking of welfare................Why should corporate America receive government hand outs?  Why should big oil and JP Morgan receive tax subsidies? 

 

Your good at blaming Obama but the shift that has taken place in this country of protecting big business at the expense of the rest of us needs to stop and stop now.  Enough with this b.s..

 

We the voters need to have the Citizens United Law overturned.  Corporations are not people just greedy s.o.b.s who want to keep taking and not pay their fair share of Federal Tax, infringe on worker rights, raid or destroy pension plans.

 

Next in line for elimination is the 501(c) 4 organization that allows for paid political advertising by unnamed donors. 

 

Time to throw the bums out of corrupt  Congress that run a country club on Capitol Hill and caters to big business.

 

The workers in this country have taken it on the chin and it's time elect political leaders who truly care about the middle class, every day hard working Americans.   Romney is not the answer. Obama has his faults but atleast he cares.   Romney will continue the GOP's mantle of destroying this country so they can continue to prop up big business, the 1 percenters with more tax cuts, special interest groups.

 

 

 

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