Distribution of Wealth (part II)

The competitiveness of a nation's firms effects the wages, welfare and distribution of wealth that its citizens face. For example, after the second world war, American automakers held a near monopoly on car sales and accordingly were immensely profitable. The productivity of workers and companies alike allowed for an impressive growth in wages and benefits that allowed automobile workers to attain a comfortable middle class lifestyle. A strong industrial sector with high paying jobs naturally contributed to a more equitable distribution of wealth.

But an increase in competition from car makers from Japan, Germany, Korea and a host of other companies, led to a decline in the market share and profitability of American auto makers. Even with automation and outsourcing, operating expenses outstripped income, culminating in the much publicized bankruptcy of GM and several other firms. Clearly under these circumstances, it became impossible to sustain the level of workers compensation, as well as the number of autoworkers. Unfortunately this pattern of industrial decline was repeated across multiple industries, leading to industrial decline, substantial job losses and a decline in wages and benefits. All but the most radical analysts acknowledge that the welfare of workers is fundamentally connected to the health, competitiveness and profitability of companies and industries.

The decline in manufacturing was accompanied by growth in two sectors:

-retail and service industries that required low skill, low wage workers.

-high tech industries (like bio-tech) and high end services (like financial consulting) which required highly educated and highly compensated workers.

The end result was a job market that increasingly rewarded skilled, educated workers and offered diminishing returns for low skilled, uneducated workers. Needless to say this further skewed the distribution of wealth.

The only questions that remain are - what government policies contributed to the industrial decline and what can be done (if anything) to reverse it? There is a great deal of debate on this topic, but some key factors worth considering are:

1. The persistent failure of large segments of the country to consider the competitive costs imposed on American firms by numerous political mandates. For example, any company that south to set up a factory in Chicago would face costly permits, regulations, hiring mandates, taxes and outright corruption. And let's not forget the constant liability they would face with the constant threat of frivolous and fraudulent lawsuits. To protect itself, the hypothetical company would spend enormously on legal and insurance services, which greatly adds to the cost of their operating expenses.

This is not to say that we do not need health and environmental regulation and that citizens should not be able to sue corporations, rather we must carefully weigh the costs and benefits of each policies And we must always be aware that we are in a highly competitive global market in which capital and production are increasingly mobile.

2. The many sub-par public schools that do little to prepare American students for an increasingly competitive labor market that requires skilled, adaptive workers.

Why these schools perform so poorly is a topic that merits a long and separate debate.

3. A tax system that provides net disincentives for industrial investments and other productive enterprises.

4. A political system in which government intervention in the private sector and corporate influence of government policies has pathologically grown. As seen through the very selective distribution of bailouts, subsidies and selective regulation to connected financial and automotive firms, favor with the federal government is playing a dangerously large role in the success or failure of corporations. Clearly ever subsidy offered to a politically connected firm increases the tax burden on non-connected firms. Needless to say, this creates an environment that discourages private investment and innovation and encourages rent seeking.

http://en.wikipedia.org/wiki/Rent_seeking