When Trickle-down Equals Trickle-Out
How Globalism Has Undone an Old Reliable Economic Assumption
One thing the Iraq War and the current global economic meltdown has made very clear is that government contracts, tax breaks, and bailout funds do not recognize national borders. Much of the prevailing economic theory over the last twenty-five years has held that economic policy that strengthens companies will in turn create jobs. But given what we have seen over the last few years it has become apparent that how governments and companies view borders is very different. Globalism has changed everything. Giving large companies contracts, tax breaks, and bailout funds may indeed create jobs and strengthen economies. The problem is that much of that economic stimulus is bound to happen outside of our national borders. We used to argue a rising tide raises all boats. But our borders don’t hold economic water anymore. Tax policies based on trickle-down economics that seemed to work so well in the Eighties now just create trickle-out economics where benefits of American tax policies flow to some other part of the world.
How Halliburton Invest Profits from American Contracts
In 2007 Halliburton, after receiving $21 billion in contracts from the American government for work related to the Iraq and Afghanistan wars, decided to move from American to Dubai in order to save millions in taxes. Halliburton benefited from the American wars and then skipped on its part to pay for the war through taxes to the American taxpayers. In a historical sense it would be the same as General Electric, who benefitted greatly from World Wars I & II, moving to Turkey during World War II. According to Halliburton’s 2007 Annual Report significant new contracts won are in Mexico, Brazil, China, Russia, Malaysia, and Indonesia, new technology centers are to be in India and Singapore., new acquisitions consisted of British, Canadian, and Eastern hemisphere companies, and future corporate taxes will paid in Dubai. A substantial part of every contract and tax break dollar we give Halliburton trickles-out to build up an economy somewhere else.
Halliburton isn’t the only company in this situation. Over 70% of the Fortune 500 companies are foreign. All of these companies are international and most simply get more bang-for-the-buck by investing profits from U.S. operations, government contracts, and held profits from tax breaks in emerging markets or third world production facilities.
AIG Gives Bailout Funds to Foreign Banks
The latest twist on trickle-out economics is related to bailout villain AIG. In a disclosure dated March 15, 2009 AIG stated that it paid over $12 billion to foreign banks. That’s U.S. tax dollars paying to keep foreign banks afloat. AIG just proves that business doesn’t stop at national borders. Tax breaks and bailout funds don’t stop at national borders. Old school trickle-down economics is dead. Trickle-out economics is the reality.
The truth is globalization makes many of our old stand-by arguments seem irrelevant. We argue about immigration and boarders while companies use outsourcing to ignore the borders. If you don’t think an accountant or computer service rep working the phones in India is really working here is the U.S. and displacing a U.S. job then you’re not paying attention. So why are we so uptight about Mexican immigration? Both workers, Indian and Mexican, are crossing the border to work. One just does it virtually. At least in most cases we are taxing the Mexican worker. What happens to an idea like patriotism when you work for a foreign company? Patriotism used to be about being linked the land (the word comes from the Latin for father land). A patriot was tied to the land and to the local community through work. Work often involved a connection to local merchants, a local church and community groups, and to fellow citizens. Today many workers owe their livelihood to foreign companies, commute to work outside of their own community, and buy the lion’s-share of all goods and services from corporations with little or no local ties. During our nation’s most recent squabble with France you may have noticed your friends working for French companies remained silent. Most workers know not to bit the hand that feeds them. Increasingly these hands are foreign.
What we need to do now is formulate new ideas about how we will manage our economy and how we deal with giant international companies. We keep hearing that AIG is too big fail. We can’t let AIG fail without creating a horrible domino effect. The problem is that it rubs Americans the wrong way to say we have to regulate a company so it doesn’t get too big. That idea just seems un-American. Unfortunately, the new reality in this era of globalization is that any company that gets too big to fail in America is de facto insured by the American tax payer. Tax payers insuring huge international companies doesn’t sit well with Americans either. Especially since we know now that when we bail out these behemoths that a significant amount of our money is going to go somewhere else in the world to either save or create jobs.
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