The Dysfunctional Relationship between Corporations and Governments
Corporate lobbyists pressure governments to keep interest rates low. This means it is less attractive to keep money in savings accounts or government bonds. As a result, money is instead invested in stocks and other equities where the return is higher. The investment in equities helps pump money into corporations driving up stock prices, and fueling bonuses for CEOs.
Corporate lobbyists pressure governments to impose austerity. As governments employ fewer workers it it puts downward pressure on wages, especially when unemployment is already high. Through lower wages, corporations are able to have better balance sheets, once again driving up stock prices, which insures the CEO will get paid well.
Corporate lobbyists pressure governments have few rules with regard to benefits and wages. Again, the reduced need to pay benefits means there is more money to be applied to the overall balance sheet, more profits, better CEO pay.
As wages have remained stagnant and unemployment as increased, productivity levels have declined. Still five years after the Great Recession started, productivity in the US is still 2% below the previous peak (see graphs). This situation is even worse in Southern Europe where unemployment the highest in recent recorded history. And both in Europe (more on Europe) and the United States long term unemployment is the highest in many decades.
The lack of workers doing something worthwhile combined with staying unemployed is a trend that makes future prospects more bleak. Workers who remain out of the workforce for an extended period have a much lower chance of returning to the workforce.
How this Creates a Self Fulfilling Implosion
When there are fewer workers, getting paid less, receiving fewer benefits, there is going to be less consumption in the economy. Everyone is forced into a “savings” philosophy. The fear of losing a job, of getting sick and having no coverage, of using up savings... this all adds up to people trying to spend as little as possible.
When people spend as little as possible, less money goes to back into the system. Most importantly, less money flows back to the very corporations that were trying to have great balance sheets to please investors so their CEOs would profit.
When less money flows into this already dysfunctional system, the short term solution is to do even more of the same. This includes creating even fewer good paying jobs, and lobbying even more for austerity. Laying off workers or sending jobs overseas help maintain the balance sheets a little longer.
But with no consumption, stagnant wages, high unemployment, and low productivity, there comes a point when people realize the current system is making things worse, and change is needed.
When Will it Happen?
This is the most difficult question, but one place to look is the next recession. With Europe already struggling with 12% unemployment that has yet to peak, one has to wonder how well it can withstand another recession. With the United States struggling to create jobs that pay well, what will happen when a few more of those jobs are lost?
And with so much money being put into equities now, what happens when a couple of corporations suddenly have a bad year?
It Can Get Better
The World is undergoing dramatic changes right now, and faster than ever before. It’s not all bad. We are in a time when corporations have more influence than governments, and they are leading the way, often to some exciting technologies and achievements. We may soon find that dependency on Middle East oil is a thing of the past. We soon have self driving cars or even the Hyperloop (an Elon Musk project). And many of these technologies may create jobs or make the world as a whole more stable.
First, we have some dysfunction to work out and it may not be pretty, but then as we always have done, we’ll find a better way. That better way must surely involve a change in the way we value corporate lobbying and governance.