U.S. Big Business Outlook
Business: Big, Small, Micro & Startup Business Assessment. The Jobenomics 2018 U.S. Economic Outlook predicts an equal probability (33.3%) for economic improvement, maintaining the status quo, or an economic slowdown in 2018. This assessment is based on a detailed analysis of six strategic considerations: Economy, Business, Labor Force, Governance, Domestic Disruptors and International Disruptors. This posting deals with the outlook for U.S. Big Businesses. The entire 60-Page Jobenomics 2018 U.S. Economic Outlook report can be downloaded free from the Jobenomics Library
Jobenomics 2018 U.S. Economic Outlook Matrix
The outlook for American big businesses, the anchor tenant of the U.S. economy, is very encouraging and should even get much better in 2018. Already flush with cash, lower corporate taxes and repatriated overseas earnings will enhance bottom lines of major U.S. corporations. The Administration’s efforts to eliminate unnecessary regulations and level the trade playing field should further strengthen big business’ global competitiveness in 2018.
The Tax Cuts and Jobs Act (TCJA) decreased the corporate tax rate from 35% to 21%, which will make American big businesses larger and more sustainable than they already are. As reported by highly-respected business publications, the majority of big companies will deploy earnings on mergers, acquisitions, stock buybacks, dividends and investing in secondary markets. From a corporate and shareholder standpoint, implementing profits internally and making money on money is a prudent use of capital. From a U.S. economic growth perspective, the TCJA intended for most of the newfound earnings to be used for job creation, as implied by the use of the term “Jobs Act.”
Big business has blessed the American way of life and economy. However, Jobenomics contends that too many corporations are too inward-looking and overly concerned about corporate and shareholder value. As “corporate citizens,” big business must also concern themselves with social well-being and community development. Corporate citizenship, also known as corporate conscience or corporate social responsibility, is a concept that promotes the health and welfare of society, communities, small businesses, the workforce and the environment.
Today’s big businesses are immensely powerful—often more powerful than the nation and communities that they ostensibly serve. Apple, the most prosperous company in the world, serves as a good example.
If Apple were a country, it would rank 17th out 198 countries, with a market value the size of Mexico’s GDP ($987 billion). As of January 2018, Apple had a market cap of $914 billion, annual net sales (2017) of $229 billion with a net income of $48 billion, and a cash stockpile of $269 billion with an estimated $253 billion (94%) stashed in overseas affiliates. If Apple were a state, its economic power would be higher than 47 out of 50 states in America.
Power begets responsibility. Federal and state governments bear the responsibility to govern, secure and care for their constituencies. Big businesses with commensurate economic power should also assume responsibility for underwriting community development and social well-being.
Despite its power and wealth, Apple employs a microscopic workforce in comparison to equally endowed institutions. Compared to Walmart, which has a market valuation one-third the size of Apple, Walmart provides 19-times as many jobs as Apple (1,500,000 versus 84,000 direct employees respectively). Compared to countries like Mexico, which wields comparable economic power as Apple, Mexico supports 29-times more jobs than Apple (58 million Mexicans versus 2 million Americans for Apple including 84,000 direct, 450,000 U.S. suppliers and 1,530,000 contingent workers). Without a viable workforce, economies cannot prosper. Apple’s employment-to-resources ratio is clearly out of whack compared to traditional big businesses.
Apple not only became the wealthiest company in the world by producing excellent products but by slashing direct labor force costs. By replacing high-cost direct labor with lower-cost independent contractors, contingent workers, and automated machines, Apple became hugely profitable. The same is true for the next four highly-valued U.S. technology giants (Alphabet-Google $792 billion, Microsoft $694 billion, Amazon $634 billion, Facebook $537 billion) and many other American big businesses. Compared to foreign conglomerates, especially Chinese technology giants (Alibaba, JD.com, Baidu, Tencent, Xiaomi), U.S. conglomerates pay far less attention to economic, community, small business, and workforce development. The long-term economic impact of this disparity will be detrimental to U.S. prosperity.
Two-thirds of Apple sales are overseas. As a result of this sales ratio, many perceive that Apple considers itself more a citizen of the world than an American corporate citizen. This perception may be warranted since Apple spends more time and money developing overseas markets and labor forces at the expense of the labor force. For example, Apple is translating its hardware operating language (iOS) into Mandarin Chinese to make it easier for 850 million native Mandarin speakers to build iOS apps and compete in the highly lucrative app market that is currently dominated by American app developers. A sizeable percentage of Apple’s 1,530,000 contingent workers are apps developers. Furthermore, by pandering to the Chinese market, Apple empowers Chinese economic hegemony over the United States, which will be discussed later in this analysis. For more information download the Jobenomics report entitled, China’s Digital Economy Quest.
The problem for multinational conglomerates, like Apple, is whether their corporate social responsibility applies more globally than nationally. For U.S. conglomerates, corporate social responsibility is often more globally-oriented due to the attractiveness of emerging markets. For foreign multinationals, especially Chinese companies, corporate social responsibility is overwhelmingly nationalistic. From a Jobenomics perspective, corporate social responsibility begins at home. The family is more important than friends, associates or clients.
The TCJA will save Apple almost $7 billion in 2018. The TCJA also lowered the repatriation tax rate from 40% to 15.5%. If Apple repatriates all of its overseas cash ($253 billion) at a 15.5% tax rate, Apple will pay $39 billion in U.S. taxes, which leaves $214 billion in after-tax profits. Quoting a 17 January 2018 Apple press release, “Apple, already the largest U.S. taxpayer, anticipates repatriation tax payments of approximately $38 billion as required by recent changes to the tax law.” In other words, it appears that Apple plans to repatriate most of its overseas cash.
So what does Apple plan to do with $221 billion of additional cash? A recent analysis by Forbes asserts that “Apple will use the (repatriated) funds primarily to increase its shareholder returns, improving dividends and share repurchases.” In layman’s terms, this means that Apple and its investors will be the primary beneficiaries of the newfound cash. Consequently, Apple will invest only a small percentage of this additional money in capital expenditures, workforce development, and socially responsible projects.
Per the Apple press release, Apple intends to invest $30 billion over the next five years in capital expenditures in the United States. $30 billion is a pittance compared to Apple’s annual profits and cash reserves. Moreover, much of the capital expenditures are likely to be applied to automation that will displace many more lower-skilled workers than the high-tech jobs it will create. The press release also states that Apple plans to “create over 20,000 new jobs (over the next 5-years) through hiring at existing campuses and opening a new one.” For a company that has the resources of the size of Mexico, 4,000 new jobs per year is a very modest figure. However, many of these jobs may not include American citizens. According to MyVisaJobs.com, in 2017, Apple filed for 2,007 H1B visa and green card applications with an average starting salary of $151,000. Consequently, President Trump’s tweet that Apple’s response the TCJA is “huge win for American workers and the USA!” may be a bit premature if this analysis is correct.
Apple is a titan of industry. Its contribution to America and the world is enormous. Its technology is transformative. It is too important to fail. To be even more successful, America needs to view Apple as predominantly American. Built on an American foundation, Apple must ensure that its foundation is firm and supportive.
Apple is America’s corporate darling, but anti-technology and anti-trust sentiments are burgeoning. Once supportive, policy-makers view growing monopolistic power and influence of tech-giants with alarm. The disparity between vast sums of wealth and low employment create a Robber-Barron connotation. Corporate support for liberal and progressive causes alienates conservative institutions. To ameliorate tech-lash, American corporate titans must be more proactive in economic, community and workforce development with emphasis on those at the base of America’s socioeconomic pyramid. Tech-giants and other big businesses could use their collective power for socially responsive programs like urban renewal, micro-business creation, and middle-class restoration.
With the collective technological power underwritten by the financial strength of $3.6 trillion worth of listed equities, the five tech titans could quickly create tens of millions of indirect and induced Americans jobs. With a miniscule cadre of 84,000 direct employees, Apple supports nearly 2 million indirect jobs (450,000 U.S. suppliers and 1,530,000 contingent workers). Each of Apple’s indirect jobs creates 3-times as many induced jobs (e.g., transportation, hospitality, and other service occupations) for a total of approximately 8 million Americans. Consequently, if the Big-5 committed themselves to doubling the size of their indirect workforce by exploiting the network effect of their ubiquitous platforms, they would enable the creation of tens of millions of jobs in the digital economy. By doing so, the American economy and workforce would prosper, and public trust in tech titans would soar.
Is such a feat of these grand proportions possible? Absolutely. The Chinese Big-5 (Alibaba, JD.com, Baidu, Tencent, Xiaomi) are doing this today. Alibaba serves as an excellent example. According to Alibaba’s founder, Jack Ma, Alibaba was founded “to champion small businesses, in the belief that the internet would level the playing field by enabling small enterprises to leverage innovation and technology to grow and compete more effectively in the domestic and global economies.” Jack Ma’s strategic vision fits within China’s strategic framework and “New Retail” vision to become the world’s leading economic power.
In a 2016 letter to his shareholders, Jack Ma committed Alibaba to help solve the world’s social problems. “In 20 years, we hope to serve 2 billion consumers around the world, empower 10 million profitable businesses and create 100 million jobs.” The majority of these jobs will be in China. Jack Ma’s New Retail vision is a hybrid E-Commerce/On-Demand Economy. This digital economy hybrid integrates Alibaba’s e-commerce platform (with all its bells-and-whistles from a massive network replete with zettabytes of consumer data analyzed by state-of-the-art data analytic technologies), mobile-commerce (1 billion Chinese mobile phone users) and near real-time provisioning of goods and services tailored to satisfy customer needs and demands.
From the Jobenomics 2018 U.S. Economic Forecast perspective, corporate tax cuts and repatriation of capital will not significantly grow the U.S. labor force, which provides the goods and services that are needed to increase U.S. consumption and GDP growth. At a December 2017 Yale CEO Summit only 14% of CEOs planned to make significant, immediate domestic capital investments after the TCJA bill passed. At a November 2017 Business Roundtable Summit, led by JPMorgan Chase CEO’s Jamie Dimon, only 43% are planning to ramp up hiring, and 18% are implementing job cuts in early 2018. If these CEOs represent the attitude of other American CEOs, then corporate profitability triumphs over corporate social responsibility by a wide margin.
Restoring the U.S. manufacturing base and re-shoring American jobs are two of President Trump’s vitally-important, signature initiatives. Manufacturing currently employs 12,539,000 Americans, which is less than 6% of the U.S. labor force. During the first year of the Trump Administration, U.S. manufacturers produced only 196,000 new jobs, which equates to an annualized growth rate of 1.6%, precisely half of the latest reported (Q3 201&) U.S. GDP growth rate of 3.2%. The TCJA should substantially increase the robustness of the U.S. manufacturing sector. However, the American public should not be encouraged to view manufacturing as a significant producer of high paying jobs as it did in the 20th Century.
From a wage perspective, manufacturing is no longer the high paying industry sector that it used to be, nor will it be in the future. According to the U.S. Berkeley Labor Center and the National Employment Law Project, contrary to public perception that manufacturing jobs are “good jobs,” manufacturing wages now rank in the bottom half of all jobs in the United States and are not even keeping up with inflation. In the largest segment of the American manufacturing base, automotive manufacturing, wages have declined further, falling three times faster than manufacturing as a whole and nine times faster than all occupations.
Technology is transforming manufacturing processes to be more efficient and cost-effective via automation of manual and cognitive labor across the entire manufacturing supply chain. Even though automation is replacing human work, it will significantly help the United States to regain its manufacturing statue. By reducing the human element, U.S. manufacturers could soon out-compete countries that specialize in low-cost, high-touch manufacturing. In 2018, one of China’s leading garment manufacturers, Tianyuan Garments Company, will start production in a modern $20 million Arkansas factory that can manufacture T-shirts for a paltry 33 cents ($0.33) each—well below the cost of similarly produced Tianyuan goods in China. U.S. manufacturers that replace labor with machines and artificially intelligent agents will out-compete those with low human labor costs. Consequently, it is imperative that Americans accept this fact of 21st Century life and politicians quit advertizing manufacturing as a job mecca.
For manufacturing to regain its former world-class status, a highly-skilled workforce will be needed to fill next-generation jobs created by the revolution in network and digital technologies. What America needs is more skills-based training and certification programs to mass-produce small businesses and jobs for those replaced by automation. Socially conscious big companies have a huge role to play in satisfying both of these needs.
Standby for the next two postings address Small & Micro-Businesses and Startup Businesses or download the entire 60-Page Jobenomics 2018 U.S. Economic Outlook at the Jobenomics Library.
About Jobenomics: Jobenomics deals with the economics of business and job creation. The non-partisan Jobenomics National Grassroots Movement’s goal is to facilitate an environment that will create 20 million net new middle-class U.S. jobs within a decade. The Movement has a following of an estimated 20 million people. The Jobenomics website contains numerous books and material on how to mass-produce small business and jobs as well as valuable content on economic and industry trends. For more information see https://jobenomicsblog.com/.