by Chris Nidel
Given the current state of the U.S. economy, particularly our high level of unemployment, a recent interview by Starbucks CEO Howard Schultz caught my attention. After watching, and ultimately re-watching the interview, I became completely frustrated with the misleading nature of the discussion, based on what may be simple ignorance on the part of the 14th highest paid CEO in the U.S.
First, the CBS News lead-in starts the discussion on a deceptive foot, citing that Starbucks has already hired 36,000 people this year. While I have no doubt that Starbucks hired thousands of employees last year, those 36,000 jobs are not necessarily newly created jobs. Rather, these jobs most likely came at the expense of jobs at smaller chains and local coffee shops. Contextually the implication seems to be that Schultz clearly has valuable insight, as his company is able to continue to hire while national unemployment numbers rise, making him particularly well-positioned to comment on our nation’s job crisis.
Next, Mr. Schultz suggests that one reason for the jobs deficit is that the majority of American manufacturing jobs have migrated overseas, with domestic manufacturing jobs shrinking to under 12 million. Certainly this is a huge problem, and perhaps the most significant reason for the current unemployment crisis. Schultz advises addressing this problem by giving “an incentive for small and large companies to buy capital equipment and make things.”
Mr. Schultz’s suggestion is extremely shortsighted and provides an inaccurate appreciation of the true breadth of this country’s manufacturing problem. Access to capital and a simple desire to “make things” domestically does nothing to address the global disadvantage faced by America’s labor market. The bottom line is that it’s much cheaper to manufacture things, even the most high-tech things, overseas, which is reinforced by WTO rules against subsidies that limit the ability of our government to prop up domestic manufacturing. This fact will not change until at least one of two things happen: either the standard of living in the United States goes down and the cost of labor becomes globally competitive, or the standard of living (and of environmental and labor protections) goes up in places like China, bringing a balance to manufacturing competitiveness.
At the core of the manufacturing issue is that those who can afford to buy iPods do not want to be paying three-times the price for them simply because they are made domestically. This means that, contrary to Mr. Schultz’s suggestion, building factories and investing in capital based on a newly found desire to “make things” is dangerously misleading.
Finally, the interview closes with Mr. Schultz giving his thesis that a broken political system in Washington is the reason unemployment is hovering at nine-percent. He cites as evidence that Americans spent over four billion dollars in the 2008 elections and are predicted to spend even more, closer to $5.5 billion, in 2012. He furthers his point by adding that all this spending is occurring while many people don’t even know where their next meal will come from. Though effective in getting our anti-government juices flowing, this is the most misleading point he makes. I agree that the numbers are nothing short of offensive in terms of the influence of money on politics and elections; however, this is not the point that Mr. Schultz is making.
What Mr. Schultz ignores is that the billions of dollars in campaign spending can actually create jobs. The money is used to hire and transport campaign staff, create campaign media, and a number of other things that both directly and indirectly contribute to employment and the economy. In fact, campaigns, and the outrageous amounts of money now being spent on elections, may well have created a new way to get money into the economy. This cash now infused into the economy would likely have stayed either tied up in complex investments or saved. Mr. Schultz’s criticism implies this money is simply thrown down the drain; but it isn’t, and ironically, some, if not the majority, is fresh money released to stimulate the economy.
Mr. Schultz has a resume that commands attention, particularly when he speaks about jobs and the economy. Unfortunately, Mr. Schultz seems to be misleading the public to further his campaign against making political contributions and should be looking elsewhere for solutions. Perhaps one way to increase economic activity is to increase demand in the market by addressing the disparity between CEO compensation, like that of Mr. Schultz, which in 2010 was over $29 million, and that of his company’s baristas, who are typically paid less than $10 per hour. I am sure Mr. Schultz is a very smart person, but should he be making 150,000% more money than the people serving his coffee? More to the point, wouldn’t it be better for the unemployment rate if CEOs like Mr. Schultz distributed their company’s money more evenly throughout the workforce so that those making a minimal wage would have more disposable income to spend in the market, creating demand for more goods and services, thus putting more people to work? Perhaps I should start a campaign to only buy coffee from locally owned coffee shops where there is not such great disparity between the person at the top and the person frothing up my next tall soy latte.
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I’m sorry…are you actually suggesting that dollars spent on campaigns are in-and-of-themselves a jobs plan? The amount spent wouldn’t even move the needle on a BLS employment chart, like say those hired to conduct the 2010 census did. Not to mention the overwhelmingly skewed demographic that works most of the jobs that benefit from these contributions – not exactly reflective of the communities where new jobs are needed most.
Finally, take a look at the impact caused by the dollars spent currying favor with candidates for office. Can anyone reasonably assert that the 275% increase in the wealth of the top 1% of Americans (since 1979) is in no way correlated to their making these “job creating” contributions? (source: Congressional budget Office http://cbo.gov/ftpdocs/124xx/doc12485/10-25-HouseholdIncome.pdf)
Futhermore, though your points are well taken about America’s inability to compete in the global labor market while maintaining its standards, Shultz’s point about “making things” is far from naive. In fact, he’s merely echoing the recently retired Kansas City Fed Chair Tom Hoenig. Hoenig in his own words: “People say, and I understand it completely, we need to add jobs. We need to add jobs, but the problem is you don’t just add jobs. You produce things, you make things and from that, jobs come.”
Josh,
Thanks for the comment. On your first point, I don’t disagree, and in fact had more written to address that point that I cut out in an effort to streamline the piece. My point was not to comment on whether the increasing money spent on campaigns, which includes jobs that are created, was a good thing. My personal view is that it represents the unraveling of democracy in many ways. However, the relevant criticism was that the money spent on campaigns does both create jobs (employs people) directly and indirectly, a point that Schultz ignores. This is not limited to campaign jobs, but also people in travel, hospitality, media, and even coffee shops where campaign staff drop in for a drink.
While it seems that your point comes from a progressive perspective that questions the increasing wealth at the top, I don’t think that this is where Schultz’s argument stems. What is particularly frustrating to me is that there are clearly differences between donors that are giving small donations of $20 and $50 versus wealthy donor maxing out contributions looking for some “return” on their political investment. The question then becomes which of these donors will Schutlz’s arguments persuade and which should be addressed by the concerns you raise? There is much more that can be said about this, and it is a worthy issue to discuss, but was not the central point I was making. Maybe an issue for another piece.
As to “making things,” perhaps we disagree. I completely agree that we can not increase our manufacturing base without a desire to make things. Where I don’t agree, and feel it is shortsighted, is when people suggest “making things” as a solution to the lack of manufacturing jobs. This misses the root cause of the problem. American companies are still “making” millions of things. They are just doing it overseas. Levis is still making jeans, they just don’t make them here. Converse the same. New Balance, same. Why? Because our manufacturing is not competitive. It is more expensive and any difference that may exist in terms of quality does not justify the added expense. What is particularly important is that this is not limited to textiles, but now includes high tech pharmaceutical and electronics manufacturing. Again, there is much more that can and needs to be said about this. The point, however, was that simply instilling a desire to “make things” or even infusing money into manufacturing for capital investments, does not address the current barriers to competitive manufacturing that our standard of living and our important protections for workers and the environment create. Unless we can conjure a new industrial revolution that makes domestic manufacturing competitive again, despite tighter regulations and higher wages, the global free market will continue to drive manufacturing overseas, even when U.S. companies continue to innovate and foster the strong desire to “make things.” Rhetoric from those like Schultz and Hoenig don’t change this fact.
A sober and well thought out response. Your point about manufacturing is well-taken, though I haven’t a clue how – within the current global capitalist system – the United States could compete with India and China. I suppose high tariffs are one way – though in the case of China that would be impossible considering how much of our debt they own – but this seems far from a simple solution.
your thoughts?
Thanks Josh, the problem is that world trade laws that we wrote prohibit the use of various protective trade measures (like tariffs). So, we are falling on our own sword. Where once we could dominate in these areas, we imposed them on other nations through the WTO and the GATT. What comes around goes around. It is very hard for us as a nation to impose these rules on the rest of the world and while it benefits us, and then turn around and criticize them when it does not. If free trade and the principles of GATT are “right”, then manufacturing just may not be for us?