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Thursday, October 2, 2014 |  Madison, WI: 64.0° F  Overcast
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Sorry, your job's been outsourced!
Thousands of manufacturing jobs have moved to countries that skimp on wages and regulations. Now the service sector is also at risk
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Greg Diederich, who worked at Rayovac's Madison packing and distribution center for 17 years, vividly recalls a party hosted there in 2002. Workers were served cake and ice cream, and given flashlights to thank them for improving productivity.

Then, "a couple weeks later," the company informed the 240 workers that the facility was closing, says Diederich, who served as president of United Auto Workers Local 1329 at Rayovac.

Rayovac, it seems, had secretly firmed up an agreement with Dixon, Ill., to relocate the packaging center there. Dixon offered a package of incentives, including adjoining rail and truck access to the new facility.

But Diederich identifies another reason for the shutdown: Rayovac's increasing reliance on production from overseas sources in China, Indonesia and Mexico.

"The importation of carbon-zinc batteries from China and Mexico first resulted in the end of manufacturing in Madison and eventually the closing of the operation," he says angrily. "They just look for the lowest wage and the largest profit." In addition, these nations - notorious for their repression of worker rights - offer far fewer worker protections or environmental regulations.

Victoria Hofstad, a spokeswoman for Spectrum Brands, Rayovac's parent company, denies it. "Rayovac did not close the Madison plant due to production in China," she says. "The plant was closed because it produced old-technology batteries with a declining market." She adds that while Spectrum does not disclose information on labor costs, it considers Rayovac's remaining Wisconsin plants, in Fennimore and Portage, "cost-competitive for supplying the U.S. market."

Diederich counters that even the U.S. government recognized that outsourcing was a factor: "The Rayovac workers were granted special Trade Readjustment Assistance because the government found the layoffs were the result of foreign competition. It made that determination."

Since 2000, Wisconsin has witnessed the net loss of 100,000 factory jobs - one-sixth of its manufacturing base - with many jobs moving to Mexico, China and other low-wage, high-repression sites. Moreover, this epidemic of blue-collar jobs shifting overseas may be only the forerunner of a devastating "offshoring" plague affecting highly skilled white-collar jobs, heretofore largely immune.

Along with the job transfers overseas comes a profound break with the idea that corporations have a reciprocal obligation to the workers, communities and nation that nurtured their success.

Most dramatically, seemingly secure workers in Wisconsin suddenly find their lives in free fall when their employer announces a shutdown related to a shift to globalized production.

"It leaves you back at square one - no seniority, probably a non-union job with lower wages," says Diederich. "The real kicker is that the executives continue to loot the corporation, jacking up the stock price and making millions on their stock options."

Wisconsin's loss

If golden-hued images from TV ads shape your reality, then you may tend to equate "globalization" with a joyous global village wired to link up Wall Street yuppies with grandmas in Italy and peasants in Tibet.

But if you look at what's happening in Wisconsin's factories - and, increasingly, its office parks - globalization often seems to mean global pillage and polarization, lower wages for workers and lighter taxes for corporations. And rather than bringing people together, it is driving an economic wedge between the super-rich and the rest of us.

In Wisconsin, countless firms have radically slashed employment while shifting work to low-wage nations.

Less than 15 years ago, Briggs & Stratton was the state's largest private employer, with 11,000 production workers. Now, with plants in Mexico, China and the anti-union U.S. South, it has just 2,500 Milwaukee-area union members. Three other prominent blue-collar Milwaukee employers - Master Lock, Johnson Controls and Tower Automotive (the former AO Smith) - have long employed more workers in Mexico than Milwaukee. And Rockwell Automation (formerly Allen Bradley) has slashed its union workforce in Milwaukee from a peak of about 6,000 to 300, with plants in Mexico, the Dominican Republic, China and non-union sites in rural Wisconsin.

Other state companies have shut down entire operations. Consider these examples:

Johnson Controls in Milwaukee. On Oct. 4, 1996, the Fortune 500 company honored workers at its Brew City valve plant with a party to show appreciation for their years of dedication, with special gifts to workers with 15, 20, 25 and 30 years of service. On Oct. 9, the workers received another token of the corporation's appreciation: the announcement that their plant was closing and the jobs were being moved to Mexico. Wages at the new Mexico plant: about 72 cents an hour.

Mirro Co. in Manitowoc. The Mirro cookware plant in this community north of Sheboygan employed about 1,000 workers and was a major community landmark. A sign on its factory building read: "Proud to be home in Manitowoc for over 100 years." But in 2004, citing pressures from competitors and the demands of Wal-Mart, a major retailer for Mirro products, the firm decided to close its Manitowoc plant. It had already been importing products from China and Brazil, but chose to further lower labor costs by building a new factory in Mexico.

Racine Steel Castings. This massive foundry had been a port of entry for generations of immigrants from Eastern Europe, the South and Mexico, allowing them to escape poverty through hard work among the fiery furnaces. But the foundry, which employed 1,100 workers in 1980, was recently moved to Eastern Europe, where wages are a fraction of what they are in Racine. "We could not compete with companies where workers are paid $2,500 a year and our workers were paid $25,000 a year," one of the plant's new owners explained.

Across the street, the 125-year-old Rainfair clothing plant has been leveled after new owners, La Crosse Shoe, booted the jobs off to China. The plant has since been replaced by a juvenile correction facility.

Fiskars in Wausau. This Finnish-owned firm, whose U.S. headquarters for craft and garden products is in Madison, recently shut down production of its famous orange-handled scissors in Wausau, moving the jobs of about 300 workers to China and Taiwan. The Fiskars manufacturing jobs paid $11 to $14 an hour locally. "We were facing being the last man standing making scissors in the U.S.," explained Bill Nee, vice president for human relations in the firm's Madison office. "We had a very good plant and very good employees, but from a cost perspective, it wasn't as competitive."

As Nee's comment suggests, the pressures of corporate globalization come down on management as well as workers. If a firm like Fiskars fails to keep pace with its competitors in shaving labor costs, it is likely to lose ground and maybe even find itself on the verge of extinction.

While critics attack corporations for their greed, they miss the underlying structural forces propelling the shift of work to low-wage sites like Mexico and China. When there is no global "floor" to enforce decent universal standards for wages, worker rights and environmental conditions, the systemic pressures promote a ruthless "race to the bottom" in which virtually all corporations feel they must participate.

The myth of retraining

Globalization supporters have claimed that education and retraining will allow displaced workers to adapt and find higher-value jobs elsewhere in the U.S. economy. But studies suggest that training programs - while helping individual workers increase their employability - cannot compensate for the loss of family-supporting jobs.

For example, a 2005 study by Marc Levine of the Center for Economic Development at UW-Milwaukee found that Milwaukee has 88,524 more unemployed people than available jobs, and that 44% of African American males were unemployed. A sufficient supply of jobs - at any level of pay or benefits - simply doesn't exist.

Thus, when a displaced worker like Greg Diederich is able to land a new job - he now works in Madison at the unionized General Electrics Medical plant (formerly Datex-Ohmeda) - he realizes that he is one of the lucky ones. And still, he feels far from secure.

"I don't see any bright spots in manufacturing," Diederich says grimly. "GE Medical is building a new plant in China to supposedly build a lower-cost version of what we're building, but I'm concerned about what they really intend."

Moreover, even when displaced workers successfully complete retraining programs, they are generally unable to find jobs comparable in pay and benefits to the ones they lost. "Out of a hundred laid-off workers," writes New York Times economics writer Louis Uchitelle in his book The Disposable American: Layoffs and Their Consequences, "27 are making their old salary again, or more, and 73 are making less, or not working at all."

Finally, the latest news is that displaced workers may find even less help than before. Retraining programs in Wisconsin face a new round of cuts due to Bush administration budgetary priorities, according to memos now circulating in the state Department of Workforce Development. If so, it would be part of a trend: According to the Madison-based Center on Wisconsin Strategies, federal funding for key programs offered through the Department of Labor dropped 43% between 1985 and 2004.

Eroding support

Sen. Sherrod Brown (D-Ohio), in his book The Myths of Free Trade, has documented that U.S. investment is increasingly shifting toward authoritarian nations, where independent labor unions are crushed, critical journalists imprisoned or "disappeared," and government policy is focused on attracting foreign investors through holding down wages and offering tax subsidies.

Conventional economists have trumpeted the merits of low-priced imports produced under brutal conditions in places like Mexico and China. But many U.S. citizens have reacted with alarm to the decline of living standards for U.S. workers - wages now make up the lowest share of national income since 1947 - and the highly visible decay of industrial communities.

Popular suspicions of global outsourcing were sharpened first by the debate over the North American Free Trade Agreement, which was opposed by 65% of U.S. citizens in 1993. That was just before President Bill Clinton, backed by all but three of the nation's 1,300 daily newspapers, eked out a narrow victory for NAFTA with mostly Republican support.

NAFTA granted strong legal protections to corporate investors while offering only token protection of worker rights and the environment. Predictably, NAFTA produced a 50% increase in the number of factories along the Mexican border, where wages typically run 70 cents to $1 an hour.

Indeed, a Carnegie Endowment study found that wages along the Mexican border have actually fallen by about 25% since NAFTA. This is due to an oversupply of workers, combined with the crushing of union-organizing drives as Mexican government policy. NAFTA has fed corporate America's hunger for low-wage labor without producing the promised uplift in the lives of Mexicans.

The U.S.-owned "maquiladoras" or factories have generally meant subsistence-level wages, pollution, congestion, squalid living conditions (cardboard shacks and open sewers), and runaway crime. As Gustavo Elizondo, the mayor of Ciudad Juárez, now crammed with U.S.-owned low-wage plants, has said: "Every year, we get poorer and poorer even though we create more and more wealth."

That's one reason that, contrary to promises made early on, NAFTA has utterly failed to stem the tide of illegal immigration. There were 2.5 million Mexican illegals in 1995; eight million more have crossed the border since then. In 2005 alone, some 400 desperate Mexicans died trying to enter the U.S. while crossing parched deserts.

NAFTA, by permitting heavily subsidized U.S. corn and other agribusiness products to compete with small Mexican farmers, has driven many thousands of Mexican farmers off the land. Some 1.5 million to 2 million Mexicans have been forced out of agriculture, and many of those that remain are living in desperate poverty. These people are among those who cross the border to feed their families.

Meanwhile, NAFTA's service-sector rules have allowed firms like Wal-Mart to enter the Mexican market, selling low-priced goods made by ultra-cheap labor in China. An estimated 28,000 small and medium-size Mexican businesses have been eliminated.

The effects of NAFTA and subsequent trade agreements, such as the Permanent Normalization of Trade Relations with China and the Central American Trade Agreement, have fostered majority opposition to "free trade" even among affluent Americans. Overall, 77% of Americans oppose the offshoring of U.S. jobs, according to a 2006 Pew Research poll.

The case against 'entitlements'

Standing resolutely against any consideration of "human capital" in trade agreements is an extremely influential group of American pundits, led by New York Times columnist Thomas Friedman, author of the best-selling book The World Is Flat. Friedman strongly opposes the notion that the workers of the world possess any economic "entitlements," arguing that prosperity will be generated through governmental deregulation, higher levels of education, and the free flow of technological advances in the hands of unrestricted corporations.

Friedman reserves special venom for "The Coalition to Keep Poor People Poor." This is the term he uses for labor and environmental activists who claim to seek higher wages and better conditions for Third World workers, but whose real agenda, he divulges, is actually protecting unionized jobs in the U.S. None of Friedman's anger is directed at the corporations responsible for miserable wages and living conditions.

Instead of Friedman's "flat world," we are witnessing Himalayan levels of inequality. Internationally, the gap between the world's richest and poorest one-fifths has increased from 30-1 in 1960 to 78-1. The world's three richest individuals possess more wealth than the combined Gross Domestic Product of the poorest 48 nations.

In the U.S., inequality is reaching levels not seen since the 1920s. To cite just one striking measure: the richest 1% - about 300,000 people - earn 16.2% of all income, more than the 150 million who make up the bottom 40%, according to various news reports. Those fortunate few earning over $4.5 million - the richest 1/10 of 1% - earn 6.9% of annual income.

Further, the threat of relocating production has helped leverage vast reductions in corporate taxes at both the state and federal levels. A list of Wisconsin firms earning more than $100 million in 2003 that paid no state income tax includes such well-known names as McDonald's, Merck, Microsoft, PepsiCo, Kimberly-Clark, Johnson Controls (the largest Wisconsin-based firm), Kohl's, Snap-on Tools, and the S.C. Johnson family of companies. [See Isthmus, "Are Wisconsin Taxes Too High?" 4/6/07.] Wal-Mart is currently fighting a state effort to boost its minimal taxes.

The shift in Wisconsin's tax structure exemplifies the phenomenon described by author David Korten in When Corporations Ruled the World: "Communities and workers competing against each other to absorb even more of the costs of the world's most powerful and profitable corporations."

Much more to come?

Perhaps the most chilling aspect of the impact of globalization - a.k.a. outsourcing - on the U.S. economy is the prospect that what we've seen so far is only the beginning.

Princeton economist Alan Blinder, a self-described "free trader down to his toes," has estimated that up to 42 million highly technical U.S. jobs - ranging from computer programmers to accountants to economists - are "highly off-shorable" (Wall Street Journal, 3/28/07).

Blinder bases his projections on a detailed analysis of 817 job classifications. He predicts this next wave of job shifts will go far beyond relatively low-skill jobs like those in "call centers" used by insurance and credit-card companies, and reach even people with Ph.Ds.

Favored sites will likely be low-wage nations with large numbers of well-educated people, like China, India and countries in Eastern Europe. U.S.-based corporations that relocate professional jobs overseas will thus be able to rely on the public expenditures for higher education made by other nations, even as they fight to lower their

taxes in the U.S. and thus undermine higher education here.

Blinder calls this offshoring of professional jobs "the big issue for the next generation of Americans." In remarks to members of Congress, he warned that "tens of millions of additional American workers will start to experience an element of job insecurity that has heretofore been reserved for manufacturing workers."

The immunity enjoyed until now by college-educated professionals could change drastically. "The cheap and easy flow of information around the globe," writes Blinder, "will require vast and unsettling adjustments in the way Americans and residents of other developed countries work, live, and educate their children."

Blinder's warning must be taken seriously, especially in communities like Madison, whose employment base includes huge numbers of workers in insurance, information technology and finance who are potentially vulnerable to being offshored. For example, Promega, regarded as Madison's premier biotech firm with 850 workers worldwide, has opened operations in China.

Meanwhile, CUNA Mutual, the insurance firm, has been shifting jobs out of its unionized Madison office to non-union sites in Waverly, Iowa, and Fort Worth, Texas. But advances in technology may make transplanting jobs to, say, India or Ireland more feasible.

Leveling the field

Doug Drake, the Milwaukee-based organizing coordinator for United Steel Workers, argues for another possible model of globalization, focused on human needs rather than investor rights.

"The fundamental flaw with the current regime of world trade is that the only interests considered are those of investors and private capital," he says. "Workers, community, health and safety and the environment don't matter. So these trade deals like NAFTA are one-sided structures where investors and banks are the only ones protected....

"No one is saying we should return to a one-nation economy," Drake stresses. "We need a much more comprehensive approach that does more than take into account global stockholders."

One approach along these lines has been used by the European Union to integrate poorer nations. The EU's "social charter" calls for democracy, decent wages, health care and extensive retraining in all nations. Before then-impoverished nations like Spain, Greece, Ireland and Portugal were admitted, they received massive EU investments in roads, health care, clean water and education. The implementation of democracy, including worker rights, was an equally vital precondition for entry into the EU.

Efforts to improve conditions - schools, hospitals, roads, water supply, etc. - in poorer nations would be a central part of human-centered globalization. So too would be the enforcement of universal standards on labor rights and press freedoms, so workers could organize unions and expose unsafe or unsanitary conditions. The elimination of corporate "incentives" to relocate would be another key step.

Such an approach would level the playing field between transnational corporations and lift up conditions across the globe, rather than ratchet them down by pitting nations against each other.

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