Top of Form Lesson 7: Public Policy Expected Outcomes To understand the political economy of the United States, and to critically evaluate various theories and approaches regarding the pressing and controversial economic issues of today. Overview Politics is partly the business of determining “who gets what, when, and how,” so it is important to consider several macro-economic issues in any introductory course to American government and politics.  This area of study can be considered “political economy.”  Labor laws, entitlement programs, corporate welfare, globalization and outsourcing are all considered in this lesson. What can and should the federal government do about these issues? Labor and Unions The labor movement is the story of “rise” and “fall.”  A century ago, the labor union was in its infancy.  While many people associate today’s labor movement with strong unions (and sometimes with unreasonable demands for higher wages and more benefits), the labor movement actually has its origins in fighting for basic work safety.  It also fought against child labor. Eventually, despite local, state and federal obstacles (including several Supreme Court decisions), the labor movement accomplished many of its goals.  In fact, some economists argue that the labor movement became too successful as it was able to secure unsustainably-generous contracts from automobile manufacturers, for instance.  Indeed, the “fall” of the labor movement can be seen in the massive layoffs in the industrial sector.  General Motors, for example, laid off more than 25,000 employees – largely because GM could no longer afford to pay them the wages and benefits that the United Auto Workers (UAW) had secured in the 1980s and 1990s.  Furthermore, union membership has been continually falling for several decades – measured as a percentage of the labor force.  The right to strike is taken as a given.  At the outset of the American Industrial Revolution, however, it was often illegal for workers to organize into unions and strike.  In the 1880s, George Pullman built the town of Pullman near Chicago to manufacture his famous railway cars. All buildings in the town were company owned and rented to workers, churches, and stores.   The company cut wages a number of times in the 1880s, but it failed to reduce the rent in the company-owned housing.  Workers went on strike.  Sympathetic railway workers across the country boycotted trains carrying Pullman cars. Federal troops were called in to keep the trains moving and to break the strike, prompting violence and looting in Chicago in 1894. With the arrest of the leaders in Chicago, the strike collapsed.  A demonstration over an 8-hour working day in Chicago drew about 1,500 people in 1886.  When police attempted to disperse the meeting, a bomb exploded and rioting ensued.  Seven policemen and four other persons were killed, and more than 100 persons were wounded.  Eight “anarchist” leaders were convicted of inciting violence. ...

1. Top of Form
Lesson 7: Public Policy
Expected Outcomes
To understand the political economy of the United States, and to
critically evaluate various theories and approaches regarding the
pressing and controversial economic issues of today.
Overview
Politics is partly the business of determining “who gets what,
when, and how,” so it is important to consider several macro-
economic issues in any introductory course to American
government and politics. This area of study can be considered
“political economy.” Labor laws, entitlement programs,
corporate welfare, globalization and outsourcing are all
considered in this lesson.
What can and should the federal government do about these
issues?
Labor and Unions
The labor movement is the story of “rise” and “fall.” A century
ago, the labor union was in its infancy. While many people
associate today’s labor movement with strong unions (and
sometimes with unreasonable demands for higher wages and
more benefits), the labor movement actually has its origins in
fighting for basic work safety. It also fought against child
labor.
Eventually, despite local, state and federal obstacles (including
several Supreme Court decisions), the labor movement
accomplished many of its goals. In fact, some economists argue
that the labor movement became too successful as it was able to
secure unsustainably-generous contracts from automobile

2. manufacturers, for instance.
Indeed, the “fall” of the labor movement can be seen in the
massive layoffs in the industrial sector. General Motors, for
example, laid off more than 25,000 employees – largely because
GM could no longer afford to pay them the wages and benefits
that the United Auto Workers (UAW) had secured in the 1980s
and 1990s.
Furthermore, union membership has been continually falling for
several decades – measured as a percentage of the labor force.
The right to strike is taken as a given. At the outset of the
American Industrial Revolution, however, it was often illegal
for workers to organize into unions and strike.
In the 1880s, George Pullman built the town of Pullman near
Chicago to manufacture his famous railway cars. All buildings
in the town were company owned and rented to workers,
churches, and stores. The company cut wages a number of
times in the 1880s, but it failed to reduce the rent in the
company-owned housing. Workers went on strike. Sympathetic
railway workers across the country boycotted trains carrying
Pullman cars. Federal troops were called in to keep the trains
moving and to break the strike, prompting violence and looting
in Chicago in 1894. With the arrest of the leaders in Chicago,
the strike collapsed.
A demonstration over an 8-hour working day in Chicago drew
about 1,500 people in 1886. When police attempted to disperse
the meeting, a bomb exploded and rioting ensued. Seven
policemen and four other persons were killed, and more than
100 persons were wounded. Eight “anarchist” leaders were
convicted of inciting violence. Four were hanged, one
committed suicide, and the remaining three were pardoned after
seven years by the Governor of Illinois on the grounds that the
trial had been unjust.
On April 20, 1914, 20 men, women and children were killed in
the Ludlow Massacre. The coal miners in Colorado and other
western states had been trying to join the UMWA for many
years, but they were opposed by the Rockefeller-owned

3. Colorado Fuel and Iron Company.
Upon striking, the company evicted the miners and their
families from their company-owned houses. The miners then
set up a tent colony on public property. Colorado militiamen,
coal company guards, and strike breakers attacked the tent city,
setting it ablaze and firing into the tents. The perpetrators were
never punished, but many of the surviving miners were arrested.
An event in Arizona influenced the labor movement throughout
the United States. Over 1,000 striking workers, increasingly
involved with the Industrial Workers of the World (I.W.W.),
were forcibly deported from Bisbee, Arizona. The workers
often reached other mining and industrial operations with the
intent to organize labor.
San Francisco's maritime strike, led by militant labor leader
Harry R. Bridges, was long and bitter. The International
Longshoremen's Association (ILA) demanded improved wages
and working conditions, coast-wide bargaining rights, and the
establishment of union-controlled hiring halls. On July 5, 1934,
a thousand police officers attempted to clear the strikers from
the waterfront so that strikebreakers could do the work instead.
In the ensuing riot, 64 people were injured and two strikers
were killed. The governor sent in the National Guard to prevent
further violence.
This strike was one of the first that was hugely successful for
labor. Rather than walking off the job (which makes them
vulnerable to being fired and replaced by strikebreakers), the
workers at a Flint, Michigan, plant simply sat down and refused
to leave. During the strike, women provided a first aid station,
and, after hearing reports that the police were going to gas the
factory, a group of women – the Emergency Brigade – smashed
the factory’s window.
The strike ended after General Motors accepted the U.A.W. as
the bargaining agent. The Wagner Act was subsequently
passed. This Act protected the rights of most workers to
organize unions, to engage in collective bargaining over wages,
hours, and terms and conditions of employment, and to take part

4. in strikes and other forms of concerted activity in support of
their demands. At first, the Supreme Court declared the Act
unconstitutional. Then it reversed itself (5 to 4) in 1937 in the
famous case: National Labor Relations Board v. Jones &
Laughlin Steel Corporation (1937).
MR. CHIEF JUSTICE HUGHES delivered the opinion of the
Court:
…
The Act does not compel agreements between employers and
employees. It does not compel any agreement whatever. It does
not prevent the employer "from refusing to make a collective
contract and hiring individuals on whatever terms" the employer
"may by unilateral action determine." [n12] The Act expressly
provides in § 9(a) that any individual employee or a group of
employees shall have the right at any time to present grievances
to their employer. The theory of the Act is that free opportunity
for negotiation with accredited representatives of employees is
likely to promote industrial peace, and may bring about the
adjustments and agreements which the Act, in itself, does not
attempt to compel.
After 1937, unions around the country grew in size and
strength. In fact, it might be argued that unions became so
powerful that they demanded – and received – wages and
benefits so high that companies like General Motors were
eventually forced to move factories to other countries (under
new free trade agreements) or shut them down all together.
If there is logic to the above argument, then it might be
reasonable to conclude that unions are necessary to improve
minimum standards, wages and work conditions. But, if left
unchecked, then unions could also force industries to slow their
growth and export jobs.
Unions and the activist groups representing workers were
responsible for eliminating child labor. Child labor was
common at the turn of the century, but it was not without its
critics. The Keating-Owen Child Labor Act of 1916 was an
attempt to outlaw child labor for humanitarian reasons. The Act

5. was vigorously backed by women’s groups and progressives; it
was opposed by industry and states’ rights advocates. The
Keating-Owen Child Labor Act states, in part:
The Keating-Owen Child Labor Act
“That no producer, manufacturer, or dealer shall ship or deliver
for shipment in interstate or foreign commerce, any article or
commodity the product of any mine or quarry situated in the
United States, in which within thirty days prior to the time of
the removal of such product there from children under the age
of sixteen years have been employed or permitted to work, or
any article or commodity the product of any mill, cannery,
workshop, factory, or manufacturing establishment, situated in
the United States…”
The Act was struck down as unconstitutional by the Supreme
Court just two years later because it overstepped the purpose of
the federal government’s powers to regulate interstate
commerce. It was up to the states, the argument ran, to prohibit
child labor.
The Supreme Court found the Keating-Owen Child Labor Act to
be unconstitutional in Hammer v. Dagenhart (1918):
“The power of Congress to regulate interstate commerce does
not extend to curbing the power of the states to regulate local
trade.”
A constitutional amendment was soon proposed to give
Congress the power to regulate child labor, but it was stalled in
the 1920s by an effective campaign to discredit it.
Federal protection of children would not be obtained until
passage of the Fair Labor Standards Act in 1938, which was
also challenged before the Supreme Court before emerging
intact. In U.S. v. Darby (1941), the Supreme Court upheld the
constitutionality of the Fair Labor Standards Act, and it is still
in force today.
Justice Stone in U.S. v. Darby (1941)
“The power of Congress over interstate commerce is not

6. confined to the regulation of commerce among the states. It
extends to those activities intrastate which so affect interstate
commerce or the exercise of the power of Congress over it as to
make regulation of them appropriate means to the attainment of
a legitimate end, the exercise of the granted power of Congress
to regulate interstate commerce.”
The Entitlement Society & Corporate Welfare
Who gets what? This is a basic question to any political
system. Much of what happens in Washington revolves around
the question “who gets what?” Does the federal government
spend its revenue on “guns or butter?” How much national debt
is acceptable? To what extent should there be social or
corporate welfare? How high should taxes go to fund federal
programs?
One of the most enduring controversies of the 20th century,
which continues to this day, is the issue of how much the
government should help the poor – and how much it should
stimulate business with subsidies or tax breaks. This political
debate between “social welfare” and “corporate welfare” is the
topic of this unit.
An Entitlement Society
“Welfare” has a negative connotation because there is abuse in
the system. Incidents of abuse and scams are regularly covered
by the media, adding to the negative connotation. At the same
time, civilized societies have some kind of safety net because
no market system can adequately provide everyone with a job;
and, some people are perpetually unemployable, such as the
sick, the injured, the illiterate, children, etc…
The current welfare system of the United States has its origins
in the Great Depression, which was a near total collapse of the
economic system. Certainly, the Great Depression left millions
of Americans unemployed with no income, many of whom
wandered the country desperately searching for work. The New
Deal was President Franklin Delano Roosevelt’s response to the
Great Depression. It is important because many of its basic
assumptions remain with us today. High on that list is that

7. people are “entitled” to government assistance in times of
crisis. And, for better or for worse, entitlements (medical
insurance, pensions, welfare) have increase steadily over the
decades to keep up with inflation.
The New Deal consisted of many different efforts to end the
Great Depression. Many of these programs – and the agencies
administering them – continued to expand even as the economy
recovered. The fear is that we are moving towards a society in
which people are “entitled” to payments from the federal
government. The baby-boom generation threatens to take the
notion of entitlements to new heights.
Today, such social programs no longer just relieve pressing
needs of hunger and malnutrition, but also invest in the
educational development of the very young. “Head Start,” for
example, is a federally-subsidized pre-Kindergarten program
with popular support.
There is another political problem in the United States. People
(and politicians) are supportive of reducing federal spending in
the abstract, but when it comes time to reconsider Medicare,
Medicaid and Social Security, they are generally not
enthusiastic about making actual cuts.
In the United States, assistance of this type has now been
largely restricted to households where children are included
(usually headed by single mothers) and even these households
have only been able to access benefits for a maximum of five
years per lifetime of the adult recipient since 1996. Before that,
most American states had been providing welfare benefits to
single adults and childless married couples as well since the
Great Depression, but the number of states doing so declined
steeply during the 1990s. Many of the states still doling out
such benefits use methods other than cash payments to render
the assistance; indeed, today only two states - New Jersey and
Utah - still give out cash to poverty-stricken adults who do not
have child dependents.
These programs were often known officially by such names as
Home Relief and General Assistance. The federal welfare

8. program for households with children was originally named Aid
to Dependent Children; this was later changed to Aid to
Families with Dependent Children (often referred to by the
acronym AFDC), and since 1996 has been officially known as
Temporary Assistance to Needy Families (or TANF).
From the White House:
Expand Access to Jobs
· Help Americans Grab a Hold of and Climb the Job Ladder:
The U.S. will invest $1 billion over five years in transitional
jobs and career pathway programs that implement proven
methods of helping low-income Americans succeed in the
workforce.
· Create a Green Jobs Corps: The U.S. will create a program to
directly engage disadvantaged youth in energy efficiency
opportunities to strengthen their communities, while also
providing them with practical skills in this important high-
growth career field.
· Improve Transportation Access to Jobs: President Obama will
work to ensure that low-income Americans have transportation
access to jobs. Obama will double funding for the federal Jobs
Access and Reverse Commute program to ensure that additional
federal public transportation dollars flow to the highest-need
communities and that urban planning initiatives take this aspect
of transportation policy into account.
· Reduce Crime Recidivism by Providing Ex-Offender Supports:
President Obama will work to ensure that ex-offenders have
access to job training, substance abuse and mental health
counseling, and employment opportunities. Obama and Biden
will also create a prison-to-work incentive program and reduce
barriers to employment.
Make Work Pay for All Americans
· Expand the Earned Income Tax Credit: President Obama will
increase the number of working parents eligible for EITC
benefits, increase the benefits available to parents who support
their children through child support payments, increase benefits

9. for families with three or more children, and reduce the EITC
marriage penalty, which hurts low-income families.
· Raise the Minimum Wage to $9.50 an Hour by 2011: President
Obama believes that people who work full-time should not live
in poverty. Even though the minimum wage will rise to $7.25 an
hour by 2009, the minimum wage's real purchasing power will
still be below what it was in 1968. He will further raise the
minimum wage to $9.50 an hour by 2011, index it to inflation
and increase the Earned Income Tax Credit to make sure that
full-time workers can earn a living wage that allows them to
raise their families and pay for basic needs such as food,
transportation, and housing -- things so many people take for
granted.
· Provide Tax Relief: President Obama will provide all low and
middle-income workers a $500 Making Work Pay tax credit to
offset the payroll tax those workers pay in every paycheck. He
will also eliminate taxes for seniors making under $50,000 per
year.
Strengthen Families
· Promote Responsible Fatherhood: President Obama will sign
into law his Responsible Fatherhood and Healthy Families Act
to remove some of the government penalties on married
families, crack down on men avoiding child support payments,
and ensure that payments go to families instead of state
bureaucracies.
· Support Parents with Young Children: President Obama will
expand the highly-successful Nurse-Family Partnership to all
570,000 low-income, first-time mothers each year. The Nurse-
Family Partnership provides home visits by trained registered
nurses to low-income expectant mothers and their families.
· Expand Paid Sick Days: Today, three-out-of-four low-wage
workers have no paid sick days. The President will support
guaranteeing workers seven paid sick days per year.
Increase the Supply of Affordable Housing
· Supports Affordable Housing Trust Fund: Obama has
supported efforts to create an Affordable Housing Trust Fund to

10. develop affordable housing in mixed-income neighborhoods.
· Fully Fund the Community Development Block Grant: Obama
will fully fund the Community Development Block Grant
program and engage with urban leaders across the country to
increase resources to the highest-need Americans.
Tackle Concentrated Poverty
· Establish 20 Promise Neighborhoods: Obama will create 20
Promise Neighborhoods in areas that have high levels of
poverty and crime and low levels of student academic
achievement in cities across the nation. The Promise
Neighborhoods will be modeled after the Harlem Children's
Zone, which provides an entire neighborhood with a full
network of services from birth to college, including early
childhood education, youth violence prevention efforts, and
after-school activities.
· Ensure Community-Based Investment Resources in Every
Urban Community: Obama will work with community and
business leaders to identify and address the unique economic
development barriers of every major metropolitan area. Obama
and Biden will provide additional resources to the federal
Community Development Financial Institution Fund, the Small
Business Administration and other federal agencies, especially
to their local branch offices, to address community needs.
· Invest in Rural Areas: Obama will invest in rural small
businesses and fight to expand high-speed Internet access. They
will improve rural schools and attract more doctors to rural
areas. And they will implement a bold climate change and
energy independence plan that will revitalize rural America
through new investments in renewable energy production,
including wind, solar, and biofuel investments.
http://www.whitehouse.gov/agenda/poverty/
Corporate Welfare
Defenders of “corporate welfare” would not even use that
phrase to describe it. Senators and Representatives who favor
the infusion of government funds into the private sector justify
it in terms of stimulating business and commerce. But, at the

11. end of the day, critics claim the federal government ends up
transferring money from taxpayers to businesses and
corporations in the form of export subsidies, agricultural
subsidies and tax breaks.
Liberal democrats come out against corporate welfare most
often, so it is useful to consider the arguments against such
payments by a Libertarian-Republican from Texas, Ron Paul.
No Corporate Welfare
by Congressman Ron Paul (R-TX)
Mr. Chairman, we are here today to reauthorize the Export-
Import Bank, but it has nothing to do with a bank, do not
mislead anybody. This has to do with an agency of the
government that allocates credit to special interests and to the
benefit of foreign entities. So it is not a bank in that sense. To
me it is immoral in the fact that it takes from some who cannot
defend themselves to give to the rich who get the benefits. And
I just do not see that as being a very good function and a very
good program for the U.S. Congress. Besides, I would like to
see where somebody gives me the constitutional authority for
doing what we do here and we have been doing, of course, for a
long time.
But I do not want to talk about the immorality of this so-called
bank or the unconstitutionality of it. I want to talk just a second
or two about the economics of it. It is really bad economics. It
is pointed out that it helps a company here or there, but what is
never talked about what you do not see. This is credit
allocation.
In order to take billions of dollars and give it to one single
company, it is taken out of the pool of funds available. And
nobody talks about that. There is an expense. Why would not a
bank loan when it is guaranteed by the government? Because it
is guaranteed. So if you are a smaller investor or a marginal
investor, there is no way that you are going to get the loan. For
that investor to get the loan, the interest rates have to be higher.
So it is a form of credit allocation, and it is also a form of

12. protectionism. We do a lot of talk around here about free trade.
Of course, there is a lot of tariff activity going on as well, but
this is a form of protectionism. Because some argue, well, this
company has to compete and another government subsidizes
their company so, therefore, we have to compete. So it is
competitive subsidization of special interest corporations in
order to do this.
Now, it seems strange that we here in the Congress are willing
to give the beneficiary China the most number of dollars. They
qualify for nearly $6 billion worth of credits. And that just does
not seem like the reasonable thing for us to do. So I strongly
urge a no vote on this bill…
Enron provides a perfect example of how Eximbank provides
politically-powerful corporations competitive advantages they
could not obtain in the free market. According to journalist
Robert Novak, Enron has received over $640 million in
taxpayer-funded ``assistance'' from Eximbank. This taxpayer-
provided largesse no doubt helped postpone Enron's inevitable
day of reckoning…
It is not only bad economics to force working Americans, small
business, and entrepreneurs to subsidize the export of the large
corporations: it is also immoral. In fact, this redistribution from
the poor and middle class to the wealthy is the most
indefensible aspect of the welfare state, yet it is the most
accepted form of welfare. Mr. Speaker, it never ceases to amaze
me how members who criticize welfare for the poor on moral
and constitutional grounds see no problem with the even more
objectionable programs that provide welfare for the rich….
http://www.counterpunch.org/paul0506.html
Perhaps the largest section of “corporate welfare,” if the phrase
is warranted, is Agribusiness (ie, large farming). Critics of
these agricultural subsidies charge that it is unfair to call
something “welfare” when it goes to an African-American
female, for example, but then to call them “subsidies” when it
goes to a white farmer. As well as the article below, check out
this critique of Farm Subsidies.

13. Farm Program Pays $1.3 Billion to People Who Don't Farm
By Dan Morgan, Gilbert M. Gaul and Sarah Cohen
Washington Post Staff Writers, July 2, 2006
EL CAMPO, Tex. -- Even though Donald R. Matthews put his
sprawling new residence in the heart of rice country, he is no
farmer. He is a 67-year-old asphalt contractor who wanted to
build a dream house for his wife of 40 years.
Yet under a federal agriculture program approved by Congress,
his 18-acre suburban lot receives about $1,300 in annual "direct
payments," because years ago the land was used to grow rice.
As Congress prepares to debate a farm bill next year, The
Washington Post is examining federal agriculture subsidies that
grew to more than $25 billion last year, despite near-record
farm revenue.
Matthews is not alone. Nationwide, the federal government has
paid at least $1.3 billion in subsidies for rice and other crops
since 2000 to individuals who do no farming at all, according to
an analysis of government records by The Washington Post.
Some of them collect hundreds of thousands of dollars without
planting a seed. Mary Anna Hudson, 87, from the River Oaks
neighborhood in Houston, has received $191,000 over the past
decade. For Houston surgeon Jimmy Frank Howell, the total
was $490,709.
"I don't agree with the government's policy," said Matthews,
who wanted to give the money back but was told it would just
go to other landowners. "They give all of this money to
landowners who don't even farm, while real farmers can't afford
to get started. It's wrong."
The checks to Matthews and other landowners were intended 10
years ago as a first step toward eventually eliminating costly,
decades-old farm subsidies. Instead, the payments have grown
into an even larger subsidy that benefits millionaire landowners,
foreign speculators and absentee landlords, as well as farmers.
Most of the money goes to real farmers who grow crops on their
land, but they are under no obligation to grow the crop being

14. subsidized. They can switch to a different crop or raise cattle or
even grow a stand of timber -- and still get the government
payments. The cash comes with so few restrictions that
subdivision developers who buy farmland advertise that
homeowners can collect farm subsidies on their new back yards.
The payments now account for nearly half of the nation's
expanding agricultural subsidy system, a complex web that has
little basis in fairness or efficiency. What began in the 1930s as
a limited safety net for working farmers has swollen into a far-
flung infrastructure of entitlements that has cost $172 billion
over the past decade. In 2005 alone, when pretax farm profits
were at a near-record $72 billion, the federal government
handed out more than $25 billion in aid, almost 50 percent more
than the amount it pays to families receiving welfare.
The Post's nine-month investigation found farm subsidy
programs that have become so all-encompassing and generous
that they have taken much of the risk out of farming for the
increasingly wealthy individuals who dominate it.
The farm payments have also altered the landscape and culture
of the Farm Belt, pushing up land prices and favoring large,
wealthy operators.
The system pays farmers a subsidy to protect against low prices
even when they sell their crops at higher prices. It makes
"emergency disaster payments" for crops that fail even as it
provides subsidized insurance to protect against those failures.
And it pays people such as Matthews for merely owning land
that was once farmed.
Globalization and Outsourcing
The United States used to be virtually a world unto itself. With
the exception of sugar and rum from the Caribbean and some
finished goods from England, the United States grew or
manufactured almost everything it consumed. Over the course
of the 20th century, however, more and more of America’s
goods and services were exchanged, in both directions, on the
international market. Imports and exports became considerably
more central to the U.S. economy.

15. The American economy has undergone a radical transformation
in the past few decades. First, the U.S. witnessed a rapid
transition from manufacturing to service-oriented business.
Industrial factories closed down to relocate overseas, and
imports became more common. The epitome of this
phenomenon, at least symbolically, is Wal-Mart, where 70% of
its products are imported from China (although this may be
changing now).
In the past decade, this trend toward economic integration has
accelerated in a process often termed “globalization.” Within
globalization, there is a smaller, separate trend towards
“outsourcing,” which means the contracting of workers in
lower-wage countries. The North American Free Trade
Agreement (NAFTA) integrated the U.S., Canada and Mexico
economically. Then, the rise of China as an industrial power
meant that cheaply-produced Chinese goods could replace more
expensive American ones. Because China represents such a
large portion of U.S. exports, this means that the U.S. is
exporting far less than it is importing, overall. Whether or not
this is good or bad (for the U.S.) is a point of debate among
economists.
Some economists, like Thomas Friedman, tend to see the
positive side of globalization. While the U.S. may lose
manufacturing jobs, even as U.S. companies relocate overseas
or use contracted labor (outsourcing), it gains jobs in service
and in high-tech research.
Other economists tend to see a general hollowing out of the
American economy in all sectors. First, they say,
manufacturing jobs were offshored, and now, they claim,
service and information jobs are also moving overseas. These
economists point to the fact that personal debt in the United
States is at record levels, and that growth in the U.S. domestic
economy largely comes through debt spending.
Perhaps the best example of how globalization and outsourcing
works (or doesn’t) is Wal-Mart, which now accounts for about
10% of the U.S. Gross Domestic Product. A decade ago, many

16. of these goods were produced somewhere in the U.S., but
production has shifted to other countries with cheaper labor,
and the products have been imported. Wal-Mart argues that its
stores provide customers with high-value and low-cost goods,
that they create jobs, and that they stimulate the economic
activity of their adjacent areas, adding to overall economic
growth and prosperity. By some estimates, Wal-Mart saves
consumers some 200 billion dollars a year. Besides, Wal-Mart
is a private company, a corporation, and its primary obligation
is to make profit for stockholders.
Critics of Wal-Mart tend to argue that the chain is replacing
“Mom-and-Pop” stores, hollowing out the economy and
mistreating its workers with low-pay and low-benefit jobs,
sometimes even violating codes of employment. They make
counter-claims much like the one below, included here:
Excerpt from Anti-Wal-Mart Groups
Stop Wal-Mart!
Introduction
Wal-Mart has become recognized as a leading destructive
economic power in the U.S. and abroad. Where it establishes
stores, other retail stores are forced to close, wage and benefit
rates for workers are lowered in the area, the rights of workers
to organize are abused, and local communities have to pick up
the costs of these abuses in many different ways. In the face of
these revelations, Wal-Mart has launched an aggressive public
relations campaign to create the illusion that the company is a
source of good jobs and benefits for workers and communities
and a good corporate citizen.
Wal-Mart is trying to enter the Chicago market. Some in the
City welcome their entry hoping that Wal-Mart will provide
jobs in communities desperate for new employment, tax
revenues for the city, and low-cost goods for consumers. The
New Chicago School opposes the entry of Wal-Mart into
Chicago. Wal-Mart will accelerate the de-development of our
communities, further drain scarce public resources, and
encourage anti-labor actions and sentiment. Chicago needs to

17. stop Wal-Mart from entering our city. Instead, Chicago needs to
encourage the development of a High Road retail sector that
both meets the needs of consumers as well as builds our
communities.
http://www.clcr.org/publications/pdf/walmart_impact_analysis.p
df (pg. 5)
The Wal-Mart controversy also continues to include work-
related issues, employment issues.
Excerpts from Anti-Wal-Mart publicity:
The company faces a class action lawsuit on behalf of 1.6
million women workers, alleging rampant employment
discrimination at Wal-Mart.
The Service Employees International Union (SEIU) has
announced plans to spend $25 million a year with the ultimate
goal of unionizing Wal-Mart, the largest private U.S. employer.
And the company — which has already lost more than 200 site
fights — faces an even more-intensified resistance to its efforts
to locate new stores, as it increasingly seeks to enter markets in
more urban areas. In April, voters in the largely African-
American and Latino working class town of Inglewood,
California rejected a referendum that would have allowed Wal-
Mart to open a Supercenter without being subject to normal
municipal reviews.
But while on a bit of a public relations defensive, the company
remains the colossus of U.S. — and increasingly global —
retailing. It registers more than a quarter trillion dollars in
sales. Its revenues account for 2 percent of U.S. Gross Domestic
Product.
The company takes in more than one in five dollars spent
nationally on food sales, and market researcher Retail Forward
predicts Wal-Mart will control more than a third of food store
industry sales, as well as a quarter of the drug store industry, by
2007. Wal-Mart is the largest jewelry seller in the United

18. States, “despite the fact that the prime target market for jewelry
— high-income women from 25 to 54 years — are the least
likely of all consumers to shop for jewelry in discount
channels,” as Unity Marketing notes. Wal-Mart is the largest
outlet for sales of CDs, videos and DVDs. And on and on.
For two years running, Fortune has named Wal-Mart the most
admired company in America. It is arguably the defining
company of the present era.
The company's business model has relied on new innovations in
inventory management, focusing on ignored markets (low-
income shoppers in rural areas — though this is now changing),
and squeezing suppliers to lower their margins. But it has also
relied centrally on undercompensating employees and
externalizing costs on to society.
A February 2004 report issued by Representative George Miller,
D-California, encapsulated the ways that Wal-Mart squeezes
and cheats its employees, among them: blocking union
organizing efforts, paying employees an average $8.23 an hour
(as compared to more than $10 for an average supermarket
worker), allegedly extracting off-the-clock work, and providing
inadequate and unaffordable healthcare packages for employees.
Miller's report's innovation was in documenting how Wal-Mart's
low wages and inadequate benefits not only hurt workers
directly, but impose costs on taxpayers. The report estimated
that one 200-person Wal-Mart store may result in a cost to
federal taxpayers of $420,750 per year — about $2,103 per
employee. These public costs include:
$36,000 a year for free and reduced lunches for just 50
qualifying Wal-Mart families.
$42,000 a year for Section 8 housing assistance, assuming 3
percent of the store employees qualify for such assistance, at
$6,700 per family.
$125,000 a year for federal tax credits and deductions for low-
income families, assuming 50 employees are heads of household
with a child and 50 are married with two children.
$100,000 a year for the additional Title I [educational]

19. expenses, assuming 50 Wal-Mart families qualify with an
average of two children.
$108,000 a year for the additional federal healthcare costs of
moving into state children's health insurance programs (S-
CHIP), assuming 30 employees with an average of two children
qualify.
“There's no question that Wal-Mart imposes a huge, often
hidden, cost on its workers, our communities and U.S.
taxpayers,” Miller said. “And Wal-Mart is in the driver's seat in
the global race to the bottom, suppressing wage levels,
workplace protections and labor laws.”
Wal-Mart's abuses are giving rise to countervailing efforts, but
it is an open question whether the company has amassed such
power that it will be able to defeat such initiatives…
http://www.corporatenarc.com/walmartscandal.php
Students should be aware that APUS has an agreement with
Wal-Mart to teach its employees in academic areas, such as
business and management.
It’s possible to place the Wal-Mart controversy into a larger
world-historical perspective, as the next two articles do.
The article below suggests that global competition will become
more intense. Thomas Friedman argues that American workers
had better get ready to compete in the new global marketplace.
When he says the world is now “flat,” he means that the playing
field is even between American workers and those overseas:
It's a Flat World After All
By Thomas Friedman
Published: April 3, 2005
In 1492 Christopher Columbus set sail for India, going west. He
had the Nina, the Pinta and the Santa Maria. He never did find
India, but he called the people he met ''Indians'' and came home
and reported to his king and queen: ''The world is round.'' I set
off for India 512 years later. I knew just which direction I was

20. going. I went east. I had Lufthansa business class, and I came
home and reported only to my wife and only in a whisper: ''The
world is flat.''
And therein lies a tale of technology and geoeconomics that is
fundamentally reshaping our lives -- much, much more quickly
than many people realize. It all happened while we were
sleeping, or rather while we were focused on 9/11, the dot-com
bust and Enron -- which even prompted some to wonder whether
globalization was over. Actually, just the opposite was true,
which is why it's time to wake up and prepare ourselves for this
flat world, because others already are, and there is no time to
waste.
I wish I could say I saw it all coming. Alas, I encountered the
flattening of the world quite by accident. It was in late February
of last year, and I was visiting the Indian high-tech capital,
Bangalore, working on a documentary for the Discovery Times
channel about outsourcing. In short order, I interviewed Indian
entrepreneurs who wanted to prepare my taxes from Bangalore,
read my X-rays from Bangalore, trace my lost luggage from
Bangalore and write my new software from Bangalore. The
longer I was there, the more upset I became -- upset at the
realization that while I had been off covering the 9/11 wars,
globalization had entered a whole new phase, and I had missed
it. I guess the eureka moment came on a visit to the campus of
Infosys Technologies, one of the crown jewels of the Indian
outsourcing and software industry. Nandan Nilekani, the Infosys
C.E.O., was showing me his global video-conference room,
pointing with pride to a wall-size flat-screen TV, which he said
was the biggest in Asia. Infosys, he explained, could hold a
virtual meeting of the key players from its entire global supply
chain for any project at any time on that supersize screen. So its
American designers could be on the screen speaking with their
Indian software writers and their Asian manufacturers all at
once. That's what globalization is all about today, Nilekani said.
Above the screen there were eight clocks that pretty well
summed up the Infosys workday: 24/7/365. The clocks were

21. labeled U.S. West, U.S. East, G.M.T., India, Singapore, Hong
Kong, Japan, Australia.
''Outsourcing is just one dimension of a much more fundamental
thing happening today in the world,'' Nilekani explained. ''What
happened over the last years is that there was a massive
investment in technology, especially in the bubble era, when
hundreds of millions of dollars were invested in putting
broadband connectivity around the world, undersea cables, all
those things.'' At the same time, he added, computers became
cheaper and dispersed all over the world, and there was an
explosion of e-mail software, search engines like Google and
proprietary software that can chop up any piece of work and
send one part to Boston, one part to Bangalore and one part to
Beijing, making it easy for anyone to do remote development.
When all of these things suddenly came together around 2000,
Nilekani said, they ''created a platform where intellectual work,
intellectual capital, could be delivered from anywhere. It could
be disaggregated, delivered, distributed, produced and put back
together again -- and this gave a whole new degree of freedom
to the way we do work, especially work of an intellectual
nature. And what you are seeing in Bangalore today is really the
culmination of all these things coming together.''
At one point, summing up the implications of all this, Nilekani
uttered a phrase that rang in my ear. He said to me, ''Tom, the
playing field is being leveled.'' He meant that countries like
India were now able to compete equally for global knowledge
work as never before -- and that America had better get ready
for this. As I left the Infosys campus that evening and bounced
along the potholed road back to Bangalore, I kept chewing on
that phrase: ''The playing field is being leveled.''
''What Nandan is saying,'' I thought, ''is that the playing field is
being flattened. Flattened? Flattened? My God, he's telling me
the world is flat!''
http://www.nytimes.com/2005/04/03/magazine/03DOMINANCE
.html
This next article is critical of globalization, and the author is

22. more protectionist. He believes that the U.S. should not trade
with countries that have such low standards of living. Besides,
he and other critics imply that so-called “free-trade agreements”
are anything but when there are so many the excepted and
protected goods – depending on congressmen who insist on
certain protections for their districts. Under NAFTA with
Mexico, for example, Mexico is not allowed to export as much
sugar to the United States as it normally would (in order to
protect southern sugar producers).
Furthermore, Bill Bonner, reflecting wider concerns, thinks that
too many Americans are losing their competitiveness and that
they are going into debt in order to pay for consumer items.
GLOBALIZATION AND ITS DISCONTENTS
by Bill Bonner
It is widely believed that the Chinese are eating our lunch.
Their factories hum and belch smoke, while ours go silent and
send up weeds in the parking lot. This phenomenon is
commonly called "globalization." But it is also commonly
misunderstood.
In the reverie of modern Americans, globalization means the
rest of the world sends you things you don't have to pay for.
The burden of today's little essay is two-fold. The first part is
easy; we point out that anyone who thinks such a thing is a fool.
The second point is harder - and more important.
The world has been globalized for a long time. An Englishman
in 1910 could sit in his parlor off St. James Park and drink tea
that came all the way from Ceylon in cups that came all the way
from China. Then, putting down his drink, he could pick up a
Cuban cigar, put it to his lips...and perhaps sprinkle a few ashes
on the carpet that he had bought in Egypt...or the leather boots
he had ordered from a shop down the street that sold Italian
goods. He could buy stocks in New York as easily as he could
pick up oranges from Spain or the latest French novels to make
their way across the channel.
But as Niall Ferguson points out in the current issue of Foreign

23. Affairs magazine, globalization is not without its
disappointments. In 1910, England had been a great world
power...and one of the world's greatest economies...for two
centuries. But global competition had recently edged the British
out of the top spot. American GDP surpassed it at the turn of
the century. Germany marched by a few years later. Relatively,
England, that "weary Titan," was in decline.
Still, why would the English complain? They lived well -
perhaps better than anyone else. Even if they didn't, they
thought they did. The rest of the world was content too. People
liked buying and selling. People in Europe liked globalization,
because it brought them oranges in the wintertime. People in the
warm latitudes liked it - now they had someone to sell their
oranges to. Even then, people spoke of the "annihilation of
distance," and assumed that more miles would be destroyed in
the years to come.
Globalization is nothing more than the extension of the division
of labor across international boundaries. Our little village in
France has the vestiges of a self-contained community. As
recently as the end of WWII, almost everything people needed
was produced right there. The farms grew wheat. Farmers raised
vegetables...and cows...pigs...chickens. There was a machine
shop...a forge...a woodworking atelier. There still remain the
'Versailles' boxes, in which lemon trees were planted. The
boxes allowed the trees to be moved into heated space in the
winter. Otherwise, they would freeze and die.
But as distance was annihilated, commerce in lemons was born.
There was no longer any need to plant lemon trees in
transportable wooden boxes when the lemons themselves could
be shipped, quickly and cheaply, by the millions. One country
can produce lemons. Another can produce machine gun
cartridges.
Individuals...towns...enterprises...regions...can divide up the
labor, work more efficiently, and produce more things at lower
cost. Everyone involved gets a little richer.
There are really only two ways to get what you want in life,

24. dear reader. You can do so honestly...or dishonestly. You can
get it by working for it...or by stealing it. You can get it by
trade and commerce...or by force and fraud. You can get it by
civilized methods...or by barbaric ones. You can get rich by
"economic means" or by "political means," as the great German
sociologist, Franz Oppenheimer put it. Globalization is merely
an elaboration of the economic means of getting things. It
requires civilized relationships to make it work; people have to
get along with each other in order to trade. They must rely on
others - even other people in strange, faraway places - for their
daily bread. They must also be able to count on the medium of
exchange that they trade goods and services in. If they can't
trust the money, they are not likely to want to do business.
The end of history has been announced several times. But it
never seems to arrive. People always tend to think that what is
will remain...that trends in place right now will continue at least
indefinitely, and perhaps forever. The odds of anything going
wrong, they tell themselves when the going is good, are like the
extreme edges of a bell curve - vanishingly small. But people
badly "underestimate the persistence of history's traditional
side, the rise and fall of empires, the rivalry of regimes, and the
disastrous exploits of great men," wrote French historian
Raymond Aron. That is to say, they tend to ignore the political
means that tend to mess things up...and the rare, fat tail events
that make history interesting.
Such a fat tail event happened in 1914. A European war
disturbed nearly 100 years of peace and progress. People
thought the war could not happen. And if it did happen, they
said, it would be short and sweet. They were wrong on both
points. Globalization had entered a shrinking phase.
Then, on April 2, 1917, Woodrow Wilson stood before Congress
and announced that the world's biggest economy was about to
shift to "political means" to get what it wanted. Instead of
merely doing business with the Entente powers, America, too,
was going to get involved in killing people. This day marked
not only another big setback for globalization...it also

25. establishes a frontier for where one empire ended and another
began. Britain ceased being the world's hegemonic imperial
power. Henceforth, the United States was the cock of the
walk...the Alpha nation...the biggest damned bull in the field.
There are times when civilization goes forward. And there are
times when it goes in the other direction. Woodrow Wilson
slammed the United States into reverse in 1917. It has been
backing up ever since, in the sense that Americans rely more on
force and fraud to get what they want. Gun-toting soldiers now
defend America's many supposed interests all over the world -
even in places where America seems to have no interests. The
U.S. government takes far more of its citizens' money than it
did in 1917...and provides detailed instructions to Americans on
such a wide variety of matters that one can scarcely toss a
chicken out the window or blow up an outhouse without asking
permission of the authorities.
But we're not complaining. For while the U.S. Empire was
growing, so was world trade. In the free world until 1989...and
now almost everywhere...a "pax dollarum" greatly aided the
cause of globalization throughout the second half of the 20th
century. But this new globalized commerce has a fraudulent side
to it. The hegemonic power is using political means, even while
it shops. During the last big boost in the division of labor, in
the 19th century up until 1914, the money in which transactions
were calibrated was backed by gold. No country - not even an
imperial one - could cheat.
If a country consumed more than it produced, other countries
found themselves with surpluses of the laggard nation's
currency. They then could ask for gold in settlement. Gold was
real, the ultimate money. When a nation's gold horde was in
danger, it quickly adjusted its policies to correct the imbalance.
The dollar, on the other hand, is merely a piece of paper, backed
by nothing more than the full faith and credit of the United
States treasury. How good a promise is that? No one knows for
sure. Niall Ferguson explains why it may be worth less than
many think:

26. "A rising proportion of Americans may consider themselves to
have been 'saved' in the Evangelical sense, but they are less
good at saving in the economic sense. The personal savings rate
among Americans stood at jut 0.2 percent of disposable personal
income in September 2004, compared with 7.7 percent less than
15 years ago. Whether to finance domestic investment (in the
late 1990s) or government borrowing (after 2000), the United
States has come to rely increasingly on foreign lending. As the
current account deficit has widened (it is not approaching 6% of
GDP), U.S. net overseas liabilities have risen steeply to around
25% of GDP. Half of the publicly held federal debt is now in
foreign hands; at the end of August 2004, the combined U.S.
Treasury holdings of China, Hong Kong, Japan, Singapore,
South Korea, and Taiwan were $1.1 trillion, up by 22% from the
end of 2003."
The odd thing about the spurt of globalization in the last five
years is that it's so lopsided. The U.S. takes...but it doesn't give.
It borrows...but it doesn't pay back. It buys...but it doesn't sell.
It imports...but it doesn't export. The only reason foreigners put
up with those shenanigans is because they receive paper
currency in payment. They assume their dollars will be as
valuable in the future as they are now. They assume the trends
of the last 50 years will continue unchanged. They assume that
no terrorists will knock off an archduke...and no fat tail will
plop itself down in the currency markets. They assume that
someone, somewhere, had the situation under control. And
yet..."If the private market - which knows that with high
probability the dollar is going down someday - decides that that
someday has come and that the dollar is going down now,"
writes Brad DeLong, "then all the Asian central banks in the
world cannot stop it."
What will happen when the world figures out that the United
States is pulling a fast one? We don't know. But like the period
following the sinking of the Lusitania, we're sure it will make
the history books.
http://dailyreckoning.com/globalization-and-its-discontents-3/

27. And the debate continues… Check out this article on
Globalization and Poverty. As for outsourcing, check out this
article on Fighting Back.
Conclusion
The United States has been the site of a dynamic and expansive
economy for over two centuries. It remains dynamic, but there
are new controversies regarding the relative impact of
globalization, the deficit, and other economic trends.
What can and should the federal government do about these
issues?
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