In February, the Carrier Corporation announced that it would be moving its Indiana manufacturing operations to Mexico, rendering 2,100 workers jobless. Since then, media and politicians ranging from pro-socialist left to pro-capitalist right have sought to explain, denounce or justify the corporate reasoning behind the decision.
Was the decision forced on Carrier by competition, as the company claims, or was it the result of misguided policy-making by past and present administrations and/or Congress—especially the “free-trade” deals such as the North America Free Trade Agreement?
If competition was the main factor, did it stem from China’s unfair manipulation of its currency, as presumptive Republican presidential nominee Donald Trump has alleged? Or does cut-throat competition between giant corporations flow inevitably from objective laws of the world capitalist economy in its monopoly/imperialist stage—whatever legislation Congress passes and the president signs?
A huge monopoly corporation
Carrier is one of a half dozen dominant companies that manufacture heating, ventilation and air-conditioning equipment. It is a division of a much larger transnational giant—United Technologies Corp., which also manufactures Pratt and Whitney aircraft engines (controlling more than 25 percent of the civilian airline market), Otis elevators and escalators, as well as “advanced aerospace and defense products.”
Since 2001, the dividend paid out by UTC has increased a whopping 600 percent. An April 25 press statement boasted of the company’s commitment to deliver value to its owners: “Today’s announcement extends our long track record of growing dividends and the continued execution of our previously announced plan to return $22 billion of capital, including $6 billion in dividends, to shareowners from 2015 through 2017.” The company reported a gross profit in 2015 of $15.7 billion.
The company’s immodest slogan: “We make modern life possible.”
United Technologies, clearly, is not about to go broke. So what was behind the decision to move Carrier’s manufacturing operation to Mexico?
Corporate stagnation
A clue is provided by the company’s plan to return $22 billion of capital to shareholders in just three years through 2017. This means that capital is flowing out of the company. In addition to paying out a healthy dividend, UTC is buying back its outstanding shares, not issuing new shares.
The combined result of raising the dividend and buying back its shares has boosted UTC’s share price on the stock market. Since 2001, the share price has soared roughly 1,200 percent, from under $10 to a recent peak of $120.
UTC is not alone in boosting its stock price by buying back outstanding shares. “Companies have been increasing their buybacks and dividends to please investors for years,” CNN Money reported last October. “Total payouts from S&P 500 companies surged 84% in the past decade to $934 billion in 2014, from $507 billion in 2005. … ”
An April 24, 2015, MarketWatch article reported that “net issuances of nonfinancial equities have been negative for 21 straight years” [meaning more shares bought back than new ones issued—JB]. (See chart.) In fact, these buybacks account for much of the huge rise in the stock market over this period, reflecting not robust economic expansion but deepening stagnation.
According to the Marxist law of labor value, which regulates—very imperfectly—production and distribution within the capitalist economy in the absence of any centralized coordination, capital tends to flow out of industrial sectors where the rate of profit is below the global average, and into sectors where the rate is above average. The fact that UTC, along with most other U.S. monopolies, including even Apple Inc., are experiencing large outflows of capital means that their rate of profit—not the mass of profit, which is gargantuan, but their rate—is well below the global average.
For the U.S. economy as a whole, the trend of capital outflow has been in force now for more than four decades. Beginning in the late 1990s, it became even more pronounced. Economists such as former Treasury Secretary Larry Summers have expressed deep concern about the resulting slowdown in economic growth, calling it “secular stagnation.”
De-industrialization
These pro-capitalist economists are right to be worried. A major result of this trend has been a de-industrialization of the U.S. economy—the outsourcing of more and more industrial production to countries such as China and Mexico, where wages are a fraction of those in the United States. It has continued through Democratic and Republican administrations alike, and regardless of which party controlled Congress.
As a result of de-industrialization, the U.S. empire’s military arm, dependent on the industrial strength of U.S. capitalism, is undermined. Another result is that the formerly powerful U.S. labor movement has been decimated as unionized workers are presented with the “choice” of accepting draconian cuts in wages and benefits or losing their jobs.
It was reported that Carrier told officials of the United Steelworkers, the union representing the soon-to-be laid-off workers, that it would reconsider its decision if the workers were willing to accept a pay cut down to $5.85 an hour—apparently the rate it expects to pay workers in Mexico. The union turned down the offer.
Sanders, Clinton and Trump offer new laws
None of the contending Democratic and Republican candidates for the U.S. presidency of course recognize the objective laws of capitalism discovered by Marx, since they all support the system—albeit in Sanders’ case with reforms that if implemented—a big if—would improve the lives of working people.
Donald Trump, in line with his right-wing “America First” populism, proposes new laws that would impose stiff tariffs on imported goods that threaten particular U.S. industries such as Carrier’s HVAC production. This would in effect be going back to the Smoot-Hawley Tariff of 1930, enacted in the midst of the super-crisis of 1929-1933—which further exacerbated that economic catastrophe by cutting off world trade as other countries retaliated in kind.
Both Bernie Sanders and Hillary Clinton complain of “unfair trade” and propose laws that would penalize corporations for outsourcing their operations to other countries. Such measures, while possibly providing temporary benefit in terms of saving jobs, would actually put further downward pressure on profit rates of the corporations affected and likely result in an even bigger outflow of capital in the form of share buybacks and other financial maneuvers. Much of that outflow would still end up invested in low-wage countries. In the end, nothing much would change.
The real solution
The only real, long-term solution to the continuing loss of jobs and falling living standards—as well as the growing risk of world war and climate-change catastrophe—is a revival of the workers’ movement leading a unified, independent mass movement connecting all the struggles now on the rise and leading to a workers’ government willing and able to begin the construction of a new system—socialism.
That outcome would end the tyranny of the law of labor value and the increasingly moribund profit system that it regulates. Constructed in its place would be a democratically controlled economy in which production is planned and carried out to meet human need, not feed capitalist greed.
