Robert Reich's response to elections in Europe is to argue that we do not need socialism. Instead we need a capitalism that more equally distributes the gains from rising productivity. He also suggests some reforms that might contribute to that goal. I am generally sympathetic to Reich's concerns, but I have some questions about this article.
In the first place, I don't know why he feels the need to make the distinction between a socialized capitalism and socialism, in response to the elections in Europe. The socialist parties in Europe have been advocates of socialized capitalism. The problem in Europe, and in the US, is that socialized capitalism is regressing. That raises questions about the causes, and the responses, that might retard the regression.
Reich argues that rising productivity, and how the benefits of productivity are distributed, is the central issue. He minimizes the role of globalization, and argues for a much more progressive tax system. He suggests that capitalists would be better off, because a more equal distribution of income would increase consumption and GDP. This would be a win-win solution. Its not clear to me that capitalists share Reich's point of view. They want lower taxes, and they are not dependent upon domestic consumption. They run global corporations that compete in global markets. Their goal is to be cost competitive in the global market, and to make investments that increase their share of global profits. Executive compensation systems, which reward them for stock price appreciation via stock options, encourage them to focus on short term stock price appreciation. The half life of a CEO is about three years. Executives in Europe have become Americanized. They want their compensation to match that of US executives, and they have increased their focus on the maximization of shareholder value.
Given the mind set of executives in global corporations, it is not surprising that they favor labor force flexibility and the use of temporary employees, to achieve their objectives. They want to minimize costs, and labor is still the largest cost component for most businesses, and they want to locate their businesses closer to their global markets. There is a reason why IBM has about as many employees in India as it has in the US. Its services organization is its major source of profits, and it can source highly skilled information technology employees in India at a fraction of the cost. If IBM would do otherwise, it would quickly lose in competition with Accenture, and other information services providers, who have located their service centers in India. There is a global market for highly skilled labor, and the cost of highly skilled labor in countries with higher living standards, and higher wages, will have to fall in response to a price sensitive market. Executives in global corporations are not yet faced with that kind of price competition, but they benefit from labor force price competition when they can take advantage of it.
My point is to argue that globalization is a major force that has, and will continue to affect labor markets and the distribution of income. This is true for highly skilled labor as well as it is for unskilled labor. It will facilitate convergence between living standards in developed and developing countries, and it will increase market opportunities in developing countries. Domestic governments will continue to have problems that will be difficult to solve. Inequality between developed and developing nations will be decreased, but inequality within developed and developing nations will continue to rise. Capital will receive a greater share of income, relative to labor, in developed countries, and skilled workers in developed countries will have much higher incomes than less skilled workers. It will continue to be a problem in developed countries to fund government programs with taxes on wages. Corporations will resist taxes by threatening to locate elsewhere and owners of capital will continue to demand lower taxes on capital. There are no easy solutions for domestic politicians, especially in advanced economies. They are affected by a transition to forms of globalization that have been directed by multinational corporations who do not have to run for election, but are able to influence election results with campaign contributions, and influence over public opinion.
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