The obvious reason is just to enhance their bargaining power against their employees. Increasing the supply of potential employees enhances the relative position of labor’s buy-side. It’s cheaper to bribe politicians to open up the borders than it is to raise the prices that they pay to labor.

Furthermore, corporate leaders only bear some of the costs of increasing immigration and diversity: the state handles those costs. The gangster sons of immigrant fruit-pickers are the government’s problem — not so much the problem of the agribusiness which lobbied to import them.

Much of corporate culture — especially in the era of public companies with mandatory disclosure laws which emerged in the first half of the 20th century — is focused on short term performance. Managers are only temporary. Maintaining and encouraging the growth of a local community requires a long term alignment of incentives which mass-democratic-impersonal business culture discourages severely.

Entitlements and other taxes on labor effectively make buying that labor both more risky and more expensive. This puts employers in a position to which they need to find methods to counteract that political pressure on the labor market — and they need to pursue short term rather than long term solutions to keep their jobs.

Additionally, the artificially high cost of living caused by a perpetually bailed-out, credit-infused, state-supported housing market makes it so that companies have to pay significantly higher wages than was either historically normal or that would need to be paid absent all of those interventions.

The way that these institutions have adapted to these conditions, at least domestically, has been to work with the egalitarian state to push wages back down. There are a few ways to increase the labor supply: put children on the market, hire overseas laborers, push women into the market, improve the profitability of the existing labor force, encourage workers to have more children, invest in capital equipment to reduce reliance on labor, lobby for protection, and socialize some of the labor costs.

In practice, public corporate managers tend to push all of the most effective short term solutions to the hilt. They do this, or they get replaced — whether by another competitor, or another firm.

States, rather than individual corporations, create the competitive conditions under which those corporations live. If a government elects to import enormous numbers of new workers, that’s the new competitive reality to which all companies need to adapt to. If some companies cheat on immigration law and don’t get caught, it puts pressure on companies to either formalize the loophole or to join in on the cheating — because to do otherwise means losing out in terms of competitive positioning. Uneven enforcement of law encourages corrupt behavior.

Inflationary monetary policy also encourages companies to “run as fast as they can” just to stay in place. Because holding cash means effectively losing more than the prevailing interest rate on that cash, it encourages companies to aim to expand always. It’s easier to fuel that expansion when you can import more labor and have other people pay for the training of that labor — namely, your own heavily-taxed workforce.

To end the corrupting pressure which encourages business leaders to forego investment in local communities in favor of importing a new labor force, the sources of those pressures need to be addressed. While it’s a good idea to change the law, just changing the law would not have a magical effect — you’d also have to address the corrupting pressures that encourage the flouting of the law.

So:

• We have to rethink the entire concept of the ‘public’ company with its mandatory reporting requirements (encouraging quarterly short-termism) and insider trading laws (which encourages reliance on accounting snow rather than real investigation of companies)
• Limit the extent to which companies can slough labor, training, & education costs onto the state
  • Scrap much of the education system — forcing parents, organized religion, community organizations, and businesses to bear the costs of education/training
• Limit citizenship and immigration; change who can be a full citizen
• End the short-termist approach to growing the labor supply (“Lean in” rather than following the only tried-and-true method of producing productive, law-abiding people)
• Reform banking and the central bank
• Permit civil society to re-grow

Is any of that likely to happen any time soon in the US? Nope. The US is utterly committed to a program of capital consumption — human, physical, and civilizational. Others will have to learn from the collapse.

There are a few historical stories about why the American ‘rust belt’ of industrial cities fell apart, and many of them contain fragments of the truth. The difficulty involved in unraveling all of them is that understanding exactly what happened with the enormous tangle of laws heaped upon the United States in the 20th century requires enough research to fill more than a dozen books. Understanding the intersections between labor law, environmental regulation, global trade law, monetary policy, changes in public attitudes, and more is just more complex than can be contained in a Michael Moore documentary.

I don’t expect to get through those in a blog post, but I’d like to outline my thoughts to be expanded upon later here. This is a follow up to my earlier post “Not Post-Industrial.”

The strongest argument that I can think of to roll back globalization is that, while in theory peaceful world trade is desirable, in practice, it requires an enormous empire, centralized international banking, and an inane tangle of foreign policy relationships to maintain for a large country like the US.

Libertarians will often argue that trade with China is enormously positive while simultaneously arguing that the United States should pull back from its foreign military bases and dismantle its blue water Navy. That same military-industrial complex is what pressures China to continue to trade with the US and accept American paper in return for tangible goods.

While it may be true — ignoring the costs of maintaining that quiet empire — that trade is positive — it’s stupid to ignore those costs, or to decry those costs as morally wrong, while praising the benefits.

It also assumes that peace is permanent, whereas history tells us that war — and continually swapping allegiances — is what’s normal in international relations. Formulating policies based on the assumption that world peace will be permanent is incredibly stupid.

So, why do manufacturers and other corporations prefer to send operations overseas — incurring shipping and coordination costs — rather than keep them closer to the domestic American market?

Labor Regulation

One chief reason, widely acknowledged, is that foreign countries often have laxer labor regulations and fewer wage controls. Labor unions also often have weaker or just rather different sets of legal rights in these foreign countries. Labor regulations tend to be quite popular in part because everyone in America learns in school that labor conditions for Americans before those regulations were put in place were “terrible,” ignoring that the 19th century was a period during which the American population exploded while becoming much more prosperous also, despite a massive civil war and a very weak position relative to the European empires.

Despite this widespread acknowledgment, there’s virtually no desire to roll back those regulations. Those regulations make the uncomfortable, strenuous, and dirty labor that often characterized America’s period of high growth illegal. There’s a marked tendency for a democratic people to prize comfort above everything else, and this transition is a good example of that principle in action.

The people want ‘industrial jobs,’ but they don’t want the pain, dirt, danger, and tedium that goes with those jobs. For that, they are happy to give those jobs to foreigners who will suffer the consequences — all the while griping about it.

Welfare Crowding Effect

If your choice is to either collect a welfare check or work 16-hour days in a dirty factory — and the amount of money you earn is roughly the same — you’d have to be a masochist to go in to the factory. This is one of the reasons why manufacturers often have trouble finding suitable workers despite widespread underemployment in the US. Because these programs are highly popular, and because they also have almost universal support among intellectuals, there is little chance of much welfare reform which isn’t motivated by imminent financial collapse.

Protectionism

Protectionist policies typically have the opposite of their intended effects. For example, the United States attempted to prop up U.S. Steel and other domestic producers even though they had stopped being economical under the weight of environmental and labor regulations. In the short run, it was good for the domestic producer which would have gone bankrupt. In the longer run, Japan and other marginal countries — which didn’t even have significant iron resources — managed to edge out American producers from the global market.

Protectionism tends to weaken companies and industries in the long run, depleting natural advantages. Even a champion boxer will become a wimp if you keep him locked up in a box, feed him nothing but cheese doodles, and forbid him from training.

Education Is Mostly Waste

Education tends to train young people in an entirely orthogonal direction to what their actual station in life will be. The best arguments for mass education were in terms of political formation rather than in preparation for work. Given the results of about one and a half centuries of mass education in the US, it’d be prudent to make dramatic changes in how the system works and tracks different classes of student. In countries like Switzerland, students tend to be tracked separately based on their capabilities — funneled into apprenticeships or the professions depending on their demonstrated capacities.

Attempting to funnel everyone — regardless of capability — into the professions is wasteful. It denies countless young people of a good path in life appropriate to their abilities and interests.

Tax Structure

Because highly successful capitalists tend to have the greatest influence in American legislation, we have a tax structure that favors established capital and that punishes workers — especially high wage workers. Warren Buffet’s quote about being taxed at a lower rate than his secretary is really all that needs to be said here.

Environmentalism

Environmentalism, while to some extent is necessary, has been implemented in such a way that pushes industry into foreign countries while pretending that science and technology have ‘advanced’ so as to make industry obsolete. Labor-intensive industries like textile manufacture tend to be done in poor countries rather than giving the domestic poor something to do with themselves other than collect welfare checks.

The ideology-religion of environmentalism also tends to favor large corporations which are capable of interfacing with the labyrinthine regulations over small producers who are critical to the innovation process. Environmentalism as a whole has also put the brakes on promising avenues of research and development like nuclear power generation — which could make many large sources of pollution actually obsolete.

Crime, Diversity, & Immigration

Industrial development requires a certain baseline of law and order. The Great Migration of African-Americans that began during World War II and ended in the years following the Civil Rights era also coincided with the collapse of Detroit, Cleveland, Pittsburgh, Newark, the Empire State cities, and more. The breakdown of law and order lead to the creation of the suburbs as a mass phenomenon. It also made it much more difficult to operate an industrial society which requires large, secure plants which can be physically sabotaged and require big physical supply lines.

The Great Migration was supposed to be a great story of African-Americans escaping the evil racist South and delivering stupendous growth to the Yankee industrial machine. Instead, many of those formerly great cities are now in ruins owing to the decline in public order.

If your trucks full of valuable inventory keep getting hijacked, it stops being possible to maintain heavy production. If your workers keep getting mugged on the way home from work, they won’t be able to continue working at the factory.

Factory owners also often use immigration to evade some of the other laws which curb production. It’s easier to evade the minimum wage and environmental regulations with illegal immigration laborers — they have an incentive to conceal violations of the law along with their employer, whereas citizens might be more eager to cooperate with the authorities. Immigrants themselves also tend to dissipate political order — make it more expensive — which further exacerbates some of the other issues mentioned in this section.

An excessively diverse workforce also requires the same sort of challenging political management at the micro level as it does at the macro level. The countless conflicts and factional difficulties that emerge when people have entirely different notions of how to live — and may speak different languages — is essentially an added tax on production.

Corporate leaders say that ‘diversity is a strength’ to comply with political directives, but we know that they would rather send heavy industry to more homogeneous nations thousands of miles away. Diversity is not a leading principle in China — rather, it’s more the opposite.

Antitrust Prevents Vertical Integration

Antitrust law encourages corporations to avoid ‘rolling up’ their suppliers to create vertically integrated companies. This makes it much easier for them to focus on single functions domestically — Nike mostly handles marketing, branding, and design while outsourcing production and retail. This outsourcing makes it more likely for them to just send orders to whichever factory provides the lowest bid. The efficiency that would come from vertical integration and a tighter feedback loop with the production side would be legally risky to undertake.

Monetary Policy & Banking

The most that I can say about contemporary monetary policy as compared to policy in the 1970s — the period of greatest US de-industrialization — is that it’s marginally less insane, or rather that it practices a different type of insanity.

Heavy industry requires long term investment. Long term investment requires a relatively predictable monetary environment for it to bear fruit. Otherwise, false monetary signals encourage people to build up industrial complexes which can’t be sustained. Industrial complexes which are unsustainable don’t build up into strong, stable economies.

Rollback Is Possible

If Deng Xiaoping could roll back much of the Maoist insanity of the 20th century, it should be also possible to roll back the Western economic insanity which has chased countless industries away.

Advocates of globalization tend to make it seem like an inevitable process rather than an unhappy consequence of misrule. Many advocates of globalization use it as a sort of patch for the difficulty of political reform in the Western world. They say to themselves “we know our home countries are all fucked up, but at least we can keep the show going by offshoring production and leaning on foreign leaders.”

This only remains a winning strategy so long as foreign leaders are pliant, their countries are stable, and the American military is globally dominant enough to ensure that foreigners continue to accept American commercial paper. Because this global dominance is fading, we also have to consider what must be done to adapt to the ongoing failure of globalization.

Doing that would require recognizing that Deng’s economic liberalization without ‘political liberalization’ was not actually aberrant. Political liberalization is what displaced the liberal economic order. People enjoyed the fruits of relatively free markets, but they hated the process that bore those fruits, and voted accordingly.

Essentially, what Western elites did over the course of the 20th century was to offshore the economic support mechanism for their governments, because it was both popular to do so and impossible to reform domestically. By spreading American paper all over the world, it also increased the effective tax base that the state could draw from through the process of monetary expansion. Given that this strategy has run up into diminishing returns and chaos, a dramatic rollback of the legal and cultural accumulation of the 20th century — and probably much of the 19th and 18th as well — is the only path that’s likely to work.

Yesterday, the Federal Reserve announced that they would not be hiking rates. Expectations as to what the Fed would do flipped following the stock market crashes in China, which bled over to American markets. The drama in Greece and in the EU as a whole also shook the confidence that global markets would continue trending up and to the right.

The line that the press tends to promote is that a general improvement in conditions is what’s normal, and that crises are aberrant. In reality, history is mostly the tale of unending crises, shocks, unpredictable events, and radical political changes.

The reason that the Fed bureaucrats are too intimidated to raise rates is because the entire financial system has become dependent on low rates. While it might be technically feasible — and even better for member banks within the Federal Reserve system — to raise interest rates and thereby make it more profitable to lend money, doing so would risk generating a lot more political instability and trouble for corporations which have positioned themselves as to be totally reliant on cheap credit.

Hiking rates would have been better for the domestic commercial banking system — which is why the idea was floated in the first place, to make it appear like the system was more stable — but the crashes intimidated the planners away from attempting to get back to something resembling normalcy.

This political instability isn’t necessarily national in character — if the Chicago Teacher’s Union is so burdened by pension costs that it needs to shutter schools and cut expenses with a stock market juiced by zero rates, the situation would be much worse were the Fed to cut off the market’s air supply. If the Federal government can’t even agree on a budget and relies on central bank purchases of treasury bonds to avoid cash flow problems — in a zero-rate environment — then its ability to maintain the smooth functioning of the financial system is also in doubt.

Raising rates would also not necessarily ‘reduce’ inflation in the system, as implied by some of Janet Yelen’s speech in yesterday’s announcement, in which she said that the system would look to raise rates if the CPI increased to 2% per year. While higher rates might change some market dynamics, it would also create much more incentive within the commercial banking sector to increase lending — which would put more credit into the hands of ‘main street’ at the expense of the parts of the economy that find credit easy to access.

In history, what these kinds of schemes tend to lead to are an enormous expansion in some sectors of the economy at the expense of others. Borrowers (whether direct or indirect) benefit at the expense of creditors, who become expropriated. In the case of the ZIRP scheme enacted to bail out financial institutions, governments, and corporations, the system has expropriated some creditors to benefit some borrowers and other connected parties. When these schemes fail as they always do, the former heroes of the ‘new economy’ (really the beneficiaries of the bubble credit expansion) become villains virtually overnight.

Technological ‘revolutions’ go bust and are revealed to be unsustainable given the current environment. None of this type of pattern is essentially new, but we should expect it to repeat itself unrelentingly given the dire straits that world governments and the financial system finds itself in.