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The two categories of American corporation — and their politics

Robert Reich, professor of public policy | September 13, 2010

Some giant American corporations depend on a buoyant American economy and a world-class industrial base in the United States. Others are far less dependent. What comes out of Washington in the next few years will reflect which group has most political clout — especially if Republicans take over the House and capture more of the Senate this November.

The first group includes national telecoms like Verizon and AT&T that need a prosperous America because most of their sales are here. Same with finance companies like Bank of America and Travelers Insurance whose business strategy has been built around U.S. consumers. Ditto certain giant chains like Home Depot. Naturally, all these companies were especially hard hit by the Great Depression and its devastating impact on American consumers.

The second group includes companies like Coca Cola, Exxon-Mobil, Hewlett-Packard, Intel, and McDonalds, that get substantial revenues from their overseas operations. Increasingly this means China, India, and Brazil. Ford and GM are still largely dependent on US sales but becoming less so. GM sold more cars in China last year than in the US. Not surprisingly, American companies that are less dependent on American consumers have been showing the biggest profits.

Wall Street gets this. Viewing the 30 giants that make up the Dow Jones Industrial Average, analysts are predicting that the 10 with the largest portion of sales inside the U.S. will show average revenue gains of just 1.6 percent over the next year, while the 10 with the largest portion of their sales abroad will grow by an average of 8.3 percent.

So what does this mean for politics? Big companies hedge their bets and support both Republicans and Democrats. But in my experience, companies in the first group are more responsive to tax, spending, and monetary policies that cause unemployment to drop and wages to grow, and less obsessed by inflation and deficits, than are companies in the second group. The former are also more supportive of new investments in infrastructure and education, which improve U.S. productivity over the longer term.

The problem is, more and more big companies are moving into the second category because that’s where the markets and the money are. Years ago groups like the Business Roundtable consisted mostly of large American corporations that were indubitably American, and took largely progressive positions on U.S. jobs and wages. I remember working with the National Association of Manufacturers on measures to improve U.S. education and job training. The American Electronics Association pushed the Reagan Administration for an industrial policy to preserve the nascent industrial base of U.S. computing.

No longer. Large American corporations are going global as fast as they can. That’s good for their shareholders. But in a Washington ever more susceptible to their money and influence, that’s not necessarily good for most Americans.

Cross-posted from Robert Reich’s blog.

Comments to “The two categories of American corporation — and their politics

  1. Professor:Reich
    Your the first to use the D-word.When the Republicans Rule and Chinese labor is to high,they will move it all back here,were anyone would jump at a buck and hour.

  2. Professor Reich: Thanks for your insight regarding taxation. My question is about higher taxes versus lower spending. With growing government spending at the national level at very large deficit financing, at some point it seems that small business financing could get crowded out by government financing. As this occurs, it has a direct impact on middle class workers.
    My questions are: what is the impact on jobs creation by large US deficit spending? How would lower government spending assist private sector job creation?

  3. The stock market does not fully reflect the situation being met by the US economy. The so-call short-term rises in the prices of shares does not reflect the economy as it is hugely speculative and “virtual”, with no regard to what is REALLY happening in America. Afterall, the speculative games on the asset-backed security aka sub-prime mortgage bond is what failed the US economy.

    However, I do see some light amidst this current situation. Just as the unemployment rate was reduced by the world world II from 14.6(caused by Great Depression) to 1.9%(by 1945) because of massive industrial output, a new industry like Electric Vehicles could help propel our economy forward again. I have been keeping my tabs on Evs for a while; and its a very likely situation and a huge industry, with countries like China trying to cut back on oil; even they are working on EVs.

    Also, along with EVs come businesses which hires a lot more employees to install and build the chargers that EVs need. It would all depend on how the Government and corporations react to encourage the nascent EV industry.

    Back to the World War II, a huge budget deficit of $500 bn did not stop the economy from growing; perhaps being too engaged in the war. Thus there is some light afterall; although paradoxically the war on Terrors cost American a great amount of $ with no ROI.

    Will be looking into Harley’s post on Tesla-Toyota now. Excited! Cheers!

  4. Robert Reich and Paul Krugman are the only two I pay attention to. I’m in the golf business and I have watched over the years as more and more areas of the golf industry have moved from group one to group two. For example, golf cart seat covers, use to be group one, now group two. Not good for us Americans.

    I miss the Clinton years with Reich at the helm over at Labor.

  5. Mr. Reich:
    How can one be optimistic after reading what is your most resent post.Unemployment in the 12% to 15% range may be a endemic reality for ever,who will the new consumers be the kids who work at burger King.Move to a country were your money goes much further if you have any?
    ATM cards work in all countries that are somewhat stable today.After my generation dies off and we have spent all our hard earned money on living
    a little above the poverty level,in a country were it takes two bucks a day two eat and the unskilled make two bucks a day,I don’t see our youths following us to the many countries that may afford these conditions because
    minimum wage jobs are not going to build the wealth we built from our jobs.

  6. As always, great article.

    Well, Robert Reich is not only one of the smartest professors at Cal but also one of the sexiest according to Laurie Essig at the Chronicle of Higher Education!

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