[corp-focus] "U.S. Multinationals Have Been Decoupling from the U.S. Economy," says BusinessWeek

[robert weissman]

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"U.S. Multinationals Have Been Decoupling from the U.S. Economy," says 
BusinessWeek
By Robert Weissman
March 3, 2008

No one blinks when the editor of a magazine called Multinational Monitor 
(that's me) suggests that multinational corporate interests diverge from 
and frequently contradict those of regular people.

But it's another matter when the questioning comes from BusinessWeek.

"Multinationals: Are They Good for America?" is the cover story in the 
current issue of the weekly chronicler of business. The answer to the 
question, from BusinessWeek's chief economist Michael Mandel, is a 
little bit of "on the one hand, on the other hand," but the ultimate 
conclusion is: Not particularly. The article emphasizes that the success 
of U.S.-based multinationals -- the corporate sector best positioned to 
handle a U.S. recession and benefit from the declining dollar, because 
it sells so much in other countries -- is not doing much to help the 
U.S. economy, by the measures that matter most.

In favor of multinationals, the BusinessWeek article cites research 
indicating they are more productive, pay more and are better managed 
than their domestic counterparts. U.S. multinationals also tend to base 
research and development in the United States, providing high-paying jobs.

But while multinationals are more efficient by many measures -- and 
BusinessWeek does not discuss whether they are efficient because they 
are multinational, or whether efficient firms grow to become 
multinationals -- they don't deliver on many of the things people want 
most from an economy.

Most importantly, multinationals have a terrible record on job creation. 
U.S.-based multinationals cut more than 2 million jobs in the United 
States from 2000 to 2005, BusinessWeek reports. Foreign multinationals 
also cut jobs in the United States during that period, reducing U.S. 
employment by 500,000.

This is not just an issue of moving to lower-wage, lower-cost locales. 
As compared to large companies doing business just in the United States, 
multinationals provide many fewer jobs overall -- counting jobs both in 
the United States and abroad -- relative to their share of sales and 
profits.

But a lot of the explanation for the reduction in multinationals' jobs 
in the United States is about the companies shifting jobs to lower-wage 
locations (and sub-contracting, an issue BusinessWeek does not discuss). 
"Instead of ramping up American operations to sell into the global 
markets, giant U.S. companies such as General Electric, IBM and United 
Technologies took their operations overseas," BusinessWeek's Mandel writes.

"In effect, U.S. multinationals have been decoupling from the U.S. 
economy in the past decade," he concludes.

The free-falling U.S. dollar should encourage global producers to invest 
increasingly in the United States, which will become progressively 
cheaper as the dollar falls more. But BusinessWeek cautions that tax 
considerations, among other issues, will slow this process.

This leads to a second key issue the BusinessWeek article raises: 
multinationals' tax avoidance strategies. "Moving operations overseas 
gives a multinational an almost infinite number of legal and quasi-legal 
strategies for reducing U.S. corporate income taxes." Among the 
time-worn strategies the article references: transfer pricing (so that 
U.S. subsidiaries overpay for products from other country subsidiaries, 
thereby locating revenues and profits in low-tax jurisdictions); 
transferring intellectual property to subsidiaries in low-tax 
jurisdictions, and making U.S. subsidiaries pay high royalties; and 
borrowing in high-tax jurisdictions to take advantage of interest-rate 
deductions.

A third problem BusinessWeek identifies is the ability of multinationals 
to blackmail (my word, not BusinessWeek's) countries, by demanding 
concessions in exchange for locating production sites.

The article focuses on the semiconductor industry, as an area where 
research continues in the United States, and where there is a prospect 
of expanded manufacturing. It then quotes industry leaders who brazenly 
declare that the United States has no choice but to shower companies 
with tax breaks and incentives.

"We have to choose to compete on the investment level and match other 
countries' offerings on incentives and tax breaks," George Scalise, 
president of the Semiconductor Industry Association declares. "If we 
don't do this, it will be very difficult for us to maintain our 
leadership in technology and innovation."

Echoes Hector Ruiz, CEO of Advanced Micro Devices: "It's not corporate 
welfare. [This is] a competitive world."

What Ruiz doesn't say is that the competition is rigged. In the 
multinational corporate-dominated world, the competition is between 
countries (and states and towns), and the people who live there. No 
matter which of these jurisdictions manages to outbid the others, the 
same companies still win.


Robert Weissman is editor of the Washington, D.C.-based Multinational 
Monitor, <http://www.multinationalmonitor.org> and director of Essential 
Action <http://www.essentialaction.org>.

(c) Robert Weissman

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