Forget China – it's the American economic system that is broken – Robert Reich | Opinion


Xi Jinping could perhaps agree next weekend on further measures to reduce China's trade imbalance with the United States, giving Donald Trump a way to save his trade war.

But Xi will not accept to change the Chinese economic system. Why should it?

The American economic system is focused on maximizing shareholder returns. And it is achieving this goal: the S & P 500 reached its new all-time high on Friday.

But the average Americans have not seen significant gains in their incomes for four decades, adjusted for inflation.

The Chinese economic system, on the other hand, focuses on maximizing China. And it is achieving this goal. Quarant years ago China was still backward and agrarian. Today it is the second largest economy in the world, home to the largest automotive industry in the world and some of the most powerful technology companies in the world. Over the past forty years, hundreds of millions of Chinese have been taken out of poverty.

The two systems are fundamentally different.

At the heart of the American system there are 500 giant companies based in the United States, but which produce, buy and sell items all over the world. Half of the employees are non-American, located outside the United States. One third of their shareholders is non-American.

These giant corporations have no particular allegiance to America. Their only loyalty and responsibility is for their shareholders.

They will do whatever it takes to get their share prices as high as possible, including keeping wages low, fighting unions, reclassifying employees as independent contractors, outsourcing around the world where parts are cheaper, shifting their profits to all the world wherever taxes are lower and paying ridiculous sums to their high CEOs.

At the heart of the Chinese economy, on the contrary, it is state-owned companies that take loans from state-owned banks at artificially low rates. These state-owned companies balance the ups and downs of the economy, spending more when private companies are reluctant to do so.

They are also engines of economic growth that make capital-intensive investments that China needs to thrive, including investments in cutting-edge technologies.

China's state planners and companies will do everything necessary to improve the well-being of the Chinese people and become the largest and most powerful economy in the world.

Since 1978, the Chinese economy has grown on average by more than 9% a year. Growth has slowed recently and US tariffs could bring it to 6% or 7%, but it is still faster than almost all the other economies in the world, including the United States.

The American system is based on taxes, subsidies and regulations to convince companies to act in the interest of the American public. But these levers proved to be weak compared to the corporate goal of maximizing shareholder returns.

Last week, for example, Walmart, the largest US employer, announced that it would fire 570 employees, despite taking home more than $ 2 billion out of courtesy of Trump and the cuts in republican corporate taxes. Last year, the company closed dozens of stores at Sam's Club, leaving thousands of Americans out of work.

At the same time, Walmart has invested more than 20 billion dollars in shares to buy treasury shares, which increases the pay of Walmart executives and enriches wealthy investors, but does nothing for the economy.

It should be noted that Walmart is a global company, not opposed to bribing foreign officials to get its way. On Thursday has agreed to pay $ 282 million to resolve federal charges of foreign bribery, including the channeling of over $ 500,000 to a broker in Brazil known as a "magician" for his ability to make construction permit problems disappear.

Throughout the US economy, Trump's tax cuts have squatted for jobs and salaries, but it has gone well for corporate executives and big investors. Instead of reinvesting the savings into their businesses, i International Monetary Fund reports that companies have used it to repurchase shares.

But wait. America is a democracy and China is a dictatorship, right?

True, but most Americans have little or no influence on public policy – and that's why Trump's tax cut has done so little for them.

This is the conclusion of professors Martin Gilens of Princeton and Benjamin Page of Northwestern, which analyzed 1,799 political issues before the Congress and noted that "the preferences of the average American seem to have only a tiny, almost zero impact, statistically not significant on public policy".

Instead, American legislators respond to the demands of wealthy individuals (typically business executives and Wall Street magnates) and large corporations, those with more lobbying feats and deeper pockets to bankroll campaigns.

Don't blame American corporations. I am in business to make profits and maximize their stock prices, not to serve America.

But because of their dominance in American politics and their commitment to share prices rather than the well-being of Americans, it's folly to count on them to create good American jobs or improve American competitiveness.

I am not suggesting that we emulate the Chinese economic system. I am suggesting that we will not be pleased with the American economic system.

Instead of trying to change China, we should reduce the domination of large American corporations over American politics.

China is not the reason why half of America has not had an increase in four decades. The simple fact is that Americans cannot thrive within a system largely driven by large American corporations, organized to raise their stock prices but not to stimulate Americans.

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