Is CEO Greed Fueling U.S. Industry?


Two weeks ago Johnson Controls, following a trend all too common throughout the United States, announced it was shutting down its operations in my small town of Holland, Mich., and moving to Ramos Arizpe, Mexico, where they can employ workers for $80.77 a week.

Why relocate? Johnson Controls' leadership stated that the move is necessary to remain competitive.

 

My response: Hogwash.

 

Johnson Controls in 2003 posted a 14 percent increase in company net income and a 25 percent increase in total shareholder return over the previous year. It is not a company that is hurting needing to implement drastic actions in order to turn a profit.

 

The question, then, is who will benefit from outsourcing U.S. manufacturing jobs? Obviously not the 885 employees who will lose their jobs in Michigan. Nor the community, which will begin to see other auxiliary jobs disappear, service-industry profits decline due to lost income from now-displaced JCI employees and real-estate values drop for everyone else.

 

It also would be erroneous to believe that Mexicans achieved a financial windfall, for they have sunk deeper into poverty, despite the opening of maquiladoras (assembly plants) along the border.

 

Even though wages and benefits for maquiladora employees rose by 86 percent from 1997 to 2002, real income for Mexican wage earners lost 20 percent of its purchasing power since NAFTA spurred the growth of maquiladoras.

 

The rise in wages is deceptive when we consider that their national minimum wage fell by nearly 50 percent in value over the last decade. In 1975 Mexican production workers earned 23 percent of U.S. wages. Since the relocation of U.S. jobs to Mexico, that number dropped to 11 percent, a possible reason why more dissatisfied workers tempt the hazardous border crossing to the North.

 

Who then will benefit from the relocation? One man--John M. Barth, the company's CEO. Cutting cost in employment salaries will not translate into lower prices for consumers, only larger salaries for its CEO, who last year posted a total compensation of $8,866,430. Now here is a question no one seems to be asking: Is John M. Barth worth $8,866,430?

 

The average U.S. chief executive is paid 531 times their average employee rate. Compare this to Britain at 25 times, Canada at 21 times, France at 16 times, Germany at 11 times or Japan at 10 times. Could it be that our brand of capitalism has run amok and that CEO greed is the fuel running the engine of industry?

 

Well, maybe we can turn to our government for help. Maybe Bush and his administration will step in to protect the plight faced by the 885 people in Holland who are having their jobs outsourced. Maybe our government "of the people" will secure "the general welfare" by preventing the power of one CEO to enrich himself at the expense of an entire community. And maybe the Easter bunny is real.

 

This present administration encourages U.S. industry to outsource jobs to places like Mexico based on the theory that it benefits the economic market. On the day that Johnson Controls was announcing its plans to shut down its plant in Holland, Mich., our secretary of the treasury, John W. Snow, was being interviewed by The Cincinnati Enquirer. The treasury secretary explained the government's position.

 

The practice of moving American jobs to low-cost countries, he said, "is part of trade" and "there can't be any doubt about the fact that trade makes the economy stronger."

 

His comments are reminiscent of remarks made by N. Gregory Mankiw a month earlier. Mankiw, the chairman of the White House council of economic advisers, defended outsourcing as merely another form of international trade that ultimately would be a "plus" for the United States.

 

William Poole, the president of the Federal Reserve Bank of St. Louis, agrees. He sees outsourcing as benefiting the United States by reducing prices domestically while expanding export markets.

 

Why doesn't the president say that those speaking for his administration are wrong to insist that moving U.S. jobs to Mexico is good? Unless, of course, he agrees. That is something to keep in mind come November.

 

Does it have to be this way? Of course not.

 

Take the example of the Malden Mills textile factory in Lawrence, Mass., which on Dec. 11, 1995, burned to the ground. Nearly 1,400 employees found themselves unemployed.

 

The factory owner, Aaron Feuerstein, collected over $100 million from the insurance companies. To rebuild in Lawrence would cost Feuerstein over $300 million.

 

Although the fire was a terrible accident, it did provide an opportunity to rebuild in Mexico. Feuerstein decided not only to rebuild in Lawrence, but to continue paying his employees their full wages, including medical benefits, at a cost of $20 million, and he guaranteed employment once the factory was rebuilt.

 

Feuerstein stated: "I have an equal responsibility to the community. It would have been unconscionable to put 3,000 people on the streets and deliver a death blow to the city of Lawrence. Maybe on paper our company is [now] worth less to Wall Street, but I can tell you it's [really] worth more."

 

We need more Feuerstein and fewer Barths in corporate America.

Miguel De La Torre, a Cuban American, is professor of theologies of liberation at Hope College in Holland, Mich. He is a graduate of Southern Baptist Theological Seminary and a former Baptist pastor in Kentucky. His column also appears in the Holland Sentinel.

Order Miguel De La Torre's book Reading the Bible from the Margins now from Amazon.com

 

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