How a Global Economy Bankrupts Local Business

Source: NASA Goddard Space Flight Center / Flickr

Source: NASA Goddard Space Flight Center

For better or for worse, globalization is here. That brings along with it all sorts of advantages in business and trade, as well as opening up new markets to labor, industrialization, and modernization. Giant multinational corporations are able to reap the benefits of the actions of organizations like the WTO, the World Bank, and the International Monetary Fund to bring some of the world’s most economically downtrodden nations up to speed by offering to assist in building infrastructure and establish labor pools. On the surface, things look great. But it’s all a matter of perspective.

The same trade winds that are blowing cheap coffee beans from South America in the heartland of the United States are the same that are blowing American jobs to places like India. Just like with anything else, the good brings the bad along with it, and things tend to, by nature, seek a sense of balance. Globalization has brought immense opportunity for many people around the world, and untold fortunes to many American and European businesses. But it has come at a cost in terms of jobs and the quality of life for those who are drafted into slavery-like conditions in southeast Asia and Africa.

None of this is really a secret any more, not with the advent of the Internet, countless books, and news articles, along with a loss of concern when it comes to the limits of corporate power. As business and government have become ever more entwined through Supreme Court rulings and lobbying, big business rules the roost now more than ever. Yet it’s still not enough.

Some big stories of late have focused on large American corporations dodging taxes by claiming profits in other countries. Through the use of tax havens like Ireland, these companies are able to reduce tax liabilities substantially, sometimes to less than nothing. President Obama has even come out against this type of behavior, bemoaning these companies to start paying up while calling patriotism into question.

Martin H. Simon-Pool/Getty Images

Martin H. Simon-Pool/Getty Images

Naturally, the response from the pro-business lobby has been to point at corporate tax rates, which hover around 35 percent, and among the highest in the world. But companies don’t pay that rate, hardly ever, if at all. The effective tax rate is typically much, much lower. You would think that most lawmakers, along with the general public, would be happy to put an end to tax-cheats, but the reaction has so far been to defend the cheats themselves, in many cases anyway.

The level of globalization that we have achieved, thanks to the Internet, worldwide infrastructures and trade agreements has allowed for those kind of behavior to go unchecked. Sure, American businesses are more than happy to hire employees that were educated with public resources, use publicly funded roads and ports to conduct business, and take taxpayer-funded bailouts when businesses collapse. But when it comes time to put in a few bucks to pay for it, many companies suddenly decide to become Irish, or simply a subsidiary of a much smaller foreign company, which the U.S. does not have jurisdiction over.

Honestly, if many companies put as much effort into innovating and building superior products as it does in trying to find ways to avoid paying taxes, imagine how cool the world could be.

The point is, there are huge externality costs to globalization, most of which are not accounted for. There are ways to solve these problems by the general public, not only by finding methods of making sure that giant corporations are actually paying the taxes which it is liable for, but by letting the dollars and cents of consumers speak. The most simple method for fighting back, from a consumer standpoint, is to simply buy local, domestic products.

For a long time, there has been an understanding among some pockets of consumers as to the advantages of buying locally manufactured products. For one, the money stays within the community, or at least the country, so it can be reinvested. Secondly, by supporting local and American businesses, it can help keep others employed, and make for a more robust economy. Would you rather pay for a pair of shoes made in the next town over, or in Bangladesh? Most people would rather have their money sent to the factory down the road, rather than to a multinational corporation which will use the proceeds to invest in a new factory half a world away. There is also the incredible impact on the environment to take into account as well.

By letting local businesses die off in favor of the lower prices offered by giant corporations, which can exploit cheap overseas labor and materials costs, America is only hurting itself.

Source: Thinkstock

Source: Thinkstock

Economic patriotism, as some are calling it, is the method of refocusing your buying habits onto domestic and locally produced products. There are plenty of valid arguments for this course of action, and when all the externalities are accounted for when it comes to multinational trade, buying domestic-made goods is clearly a superior choice.

However, there are those who are calling out economic patriotism as a sort of political stunt from the left. It’s easy to get folks outraged over tax evasion and fraudulent behavior, especially when it comes to big business. To be fair, the tax code, especially on the corporate and business side, is a mess. Also, the term ‘economic patriotism’ does sound like it had its makings in the office of a marketing consultant somewhere.

But as some have argued, the duty of a business, or those who run a business, is to turn a profit. Not just profit, but the highest profit possible. It’s this logic that leads to destructive behavior, and aggressive overseas expansion to take advantage of less costly resources. That, in its own right, isn’t inherently bad. It’s the fact that in order to do so, these companies are more than willing to bankrupt its own country, and let its infrastructure and citizens’ well-being crumble as a result.

Obviously, as a big company, you can save money by ‘operating’ out of the Cayman Islands. But should you? Does being born of the American business incubator not leave you liable to give a little back? The answer, in the eyes of many, apparently, is no. Profits come first. That is the attitude that will hurt everyone in the long run, and threaten to bankrupt America in the process.

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