Aliens in the Mist

They might as well be aliens. They have nothing in common with us ordinary Americans. They cannot identify with us, they do not share our everyday concerns. They are the new aristocrats of the crumbling aristocratic world. They are the Marie Antoinettes.

How can you expect them to identify with regular folks when they make as much as 500 to 600 times what an average worker makes? I am talking about today's Chief Executive Officers.

Fifty years ago, CEOs made ten times what the average workers made. All the concerns, all the fears, all the feelings of insecurity that the average workers had, the CEOs also had. What happened to the workers impacted the lives of the CEOs too.

One reason Mad Men, the cable TV show, is such a hit is that people identify with the advertising executive characters in that show. Those advertising men had to watch their budgets, ran out of money like everybody else, scrimped and saved.

One reason Bill Clinton had such high approval ratings even in the midst of the Monica scandals was that Bill identified with ordinary Americans ("I feel your pain") and they with him. Americans knew that Clinton had financial problems, just like them. In order to raise the money to fund his legal defense, Clinton did not dig from a trust fund, or his stock options, he borrowed against his life insurance policies.

The CEOs today are immune from financial hardship. They would never outlive their finances if they lived a thousand years. They no longer have anything in common with the common man.

This, in my humble opinion, is at the heart of the destruction of the American middle class. The CEOs do not identify with the American middle class because they cannot fathom what ordinary folks are experiencing these days. The CEOs might as well be space aliens newly landed from outer space. They look at American labor and what they see is a factor of production. They do not see people, they see a class of people. They see a commodity.

This is why they would close plants in America and open factories in China, India, Singapore and Taiwan without so much as a sigh. Hitler and his fellow murderers looked at the Jews and saw only the letters J-E-W. They did not see them as Dr. Rosen, or Mr. Rosenthal, or Mrs. Graham, or Master Schultz. They saw them as a class of sub-humans. The CEOs do not see their employees as individual workers to whom they owe some loyalty. They are just workers who could be replaced by other workers in China, India, etc. at a fraction of the cost.

This behavior on the part of the CEOs has been rewarded by Wall Street. Multinationals that close plants in Ohio and Indiana and open new factories in Guandong and Mumbai have seen their stocks rise in multiples of three, four or five over the past few decades.

CEOs and their highly-paid staffs have broken way past the ceiling of reasonable compensation and are earning tens of millions in salaries and perks each year. The average worker makes do with $30, $40, $50 thou a year, while the CEOs and their entourage give each other salaries 200 to 600 times what their average worker makes.

Are these CEOs especially talented, like Tiger Woods, Michael Jordan, Celine Dion, Oprah Winfrey, Lebron James and other stars in the rare firmament of stars? No way, Jose. These CEOs are just ordinary blokes who have poor people skills and are of average intelligence, but by simply being at the right place at the right time, they are elected to the pinnacle of the corporations where they have made a living for a number of years. But wait, these blokes do have a talent. They are ruthless cost-cutters. They have developed a reputation as cost-cutters. Meaning, they have in the past closed a lot of factories in the U.S. and have either opened new ones in China, Malaysia, Singapore or India; or, they have engaged sub-contractors in those countries.

With that cost-cutting reputation in tow, plus a reputation as a heartless executive, these powerful bomb throwers eventually ascend to the position of Chief Executive Officer. Once in office as the new CEO, they continue cutting costs by closing plants in the U.S. and opening up new plants in China. And Wall Street rises to its feet and gives them a standing ovation.

Labor costs are so cheap in China, India and other emerging Asian countries, which more importantly have many highly educated, science-and-math-trained workers that to the CEOs, it's a no-brainer. These plants in China make the CEOs of American multinationals look like geniuses.

More like a hare-brained strategy to me. The destruction of the American middle class has a steep long-term cost. As the American standard of living declines, purchasing power drops precipitously, and in time the American market will no longer sustain the big multinationals. True, they can sell to the emerging Chinese market, but the Chinese are still years away from matching the fertile American market. Thus, there will come a point when the multinationals can no longer sell as much to the American market because of Americans' decreased purchasing power, while not being able to sell to the emerging markets because those markets are nowhere near the American market in purchasing power.

The net result is a contraction of the multi-nationals, their decline and eventual demise. A look at the Dow Jones component companies in 1900, compared to the Dow Jones components in 2000 reveals how American corporations have gone from being on top of the world to being nowhere to be found. Only one of the 30 Dow Jones companies in 1900 was still around in 2000 - General Electric. The twenty-nine others are gone.

These multinationals that close plants in America and open factories in China and India, if history is a guide, will not be around in 2100. They will have outsmarted themselves. Having destroyed the American middle class, they will eventually see their markets shrink. Their reduced business volume will make their scales of operation unsustainable and they will find it necessary to splinter and/or be gobbled up by the new emerging companies, some of which only exist in our imaginations today.

There is an important cross-current that may still save the day for the middle class. Some important multinationals, such as Texas Instruments and Global Foundaries, a spinoff of American Micro Devices, when confronted with the question of where to locate their new, very promising high-tech plants, decided to locate them in Richardson, Texas and upstate New York. The trend is powered by a desire on the part of American businesses to locate their plants near their customers. It is also fueled by a very intelligent long view. Chinese labor costs are compounding at the rate of 15% a year, while American labor costs are increasing at an average of 2% a year. Over the 20-year-life of a factory, Chinese labor may approach or even exceed the cost of American labor.

There are security concerns. There are concerns about knock-offs. There are concerns about quality. It used to be that Westinghouse refrigerators lasted almost a lifetime. Now the refrigerators that are made in China easily break down, need repair or replacement and are more costly in the long-run. Bicycles? Fuhgeddaboutit. Bicycles made in China last exactly one month.

There are concerns about keeping highly trained employees, with job-hopping becoming common in China as new companies are formed and good employees are pirated away.

Texas Instruments has a wealth of talent to tap because of so many closed factories in Texas, in the southwest region, and finally in the United States. By partnering with the University of Texas in Dallas, TI can assure itself of a steady stream of talent that is university-trained.

There are CEOs who are so far ahead of the curve that they now see the U.S. as a destination of choice for the new factories that they are setting up to manufacture their new products. These are the CEOs who will be around for a long time and who will take their companies deep into the current century and perhaps onto the next.

If the CEOs of American multinationals do not reverse course - and soon - their days may be numbered. New, lean and mean American manufacturers are sure to sprout up and challenge the multinationals in the American market as China's and India's and other Asian countries' labor costs rise by double digit percentages each year and as the product quality differential bites the multinationals in the nose.

These aliens in the mist must emerge in daylight and learn how to be Americans again. One bright and glorious morning, most Americans will wake up and realize that the problem is not them - the canard is that Americans are under-educated and ill-trained; it is rather that aliens from outer space are running the multinationals and are decimating the middle class.

One bright and glorious morning, a responsible Board of Directors will cut back on executive compensations and bring CEOs and their sycophants down to earth, closer to their workers and become Americans again. When that day arrives, Wall Street will realize that it is not just the bottom line that predicts future success, long-term viability is conditional upon the protection of the American middle class. It is in the multinationals' self-interest to protect the American middle class, and I am confident the CEOs will eventually realize how important this goal is.

There's hope yet.

Meanwhile, some "facts" we have to live with (from the article, "American Manufacturing Going the Way of the Dodo Bird," found in Chip Hanlon's Red Country, a conservative website):

*The United States has lost approximately 42,400 factories since 2001. About 75 percent of those factories employed over 500 people when they were still in operation.

*Dell Inc., one of America’s largest manufacturers of computers, has announced plans to dramatically expand its operations in China with an investment of over $100 billion over the next decade.

*In 2008, 1.2 billion cell phones were sold worldwide. So how many of them were manufactured inside the United States? Zero.

*The United States has lost a total of about 5.5 million manufacturing jobs since October 2000. (Nykos2: George Bush was President when U.S. manufacturing lost 5.5 million jobs. Bush never commented to the country about this loss. Did he know? Did he approve? Of course he approved. Those space-alien CEOs were his base.)

*In 1959, manufacturing represented 28 percent of U.S. economic output. In 2008, it represented 11.5 percent.

*As of the end of 2009, less than 12 million Americans worked in manufacturing. The last time less than 12 million Americans were employed in manufacturing was in 1941.