The April 19 Economist magazine, that genial and usually entertaining advocate of neo-liberal economics and of productivity growth as the summum bonum of existence, carried a story about Intel announcing "plans to close its Costa Rica factory and move its operations to Malaysia, Vietnam and China. By the end of the year 1,500 jobs will have been lost."
Costa Rica is a small country and Intel accounts for "about 20% of the country's exports." It is estimated that "the closure of the microchip factory will cause a drop in Costa Rica's GDP of 0.3-0.4% over the next year." Meanwhile other companies are doing the same thing: Hewlett Packard "last year announced that it was moving some of its Costa Rican jobs to India," and "Bank of America said it would close its Costa Rican operations as part of a global restructuring programme."
Such mobility on the part of firms is certainly business as usual. Just as the Devil wanders about the world seeking the ruin of souls, so firms often wander about the world seeking a country or city willing to give them tax or other legal breaks, such as relaxation of labor or environmental laws. The Economist article does not state whether or not the Costa Rican government had given any kind of incentives of this sort in order to attract these companies to set up shop there, but it hints that such giveaways may be in the works when it mentions that the new president "has promised an international campaign to promote Costa Rica as an investment destination." The article ends with a strange admonition to the new president to do something about the jobs being lost: "The thousands left jobless will expect the new president to come up with some answers, and fast."
Now why do I say this is strange? Well, it is the companies that are moving the jobs, not the government. One would think that if these companies are departing for places where they can hire workers more cheaply, that the ire of the laid-off workers might better be directed against them than against the government. The article does note complaints on the part of "many investors" about "expensive electricity and ropy infrastructure," implying a kind of blame of the government for the whole thing, though it makes no claim that electricity or infrastructure had anything to do with the firms leaving. Rather it merely suggests that if only Costa Rica spent more of its tax money on infrastructure, companies could make more money and would not be tempted to move away to other and cheaper places. Although the editors of The Economist and their ideological allies are wont to claim that governments really can't do very much about creating jobs, except to get out of the way and allow the magical free market to do its work, here there appears to be a suggestion that what the government should do is to facilitate the profits of these companies. If not, they will pack up and move away and it will be the government's fault.
There may be instances, certainly, in which a company could not survive if it did not move to a different locality, but in many cases it is not a matter of survival but of maintaining or increasing profits. Economic liberals—those whom we call conservatives in the United States—like to criticize workers and labor unions for what they call greed, and indeed workers can be greedy, just like other human beings. But it is rare to hear any criticism of capitalists for not being content with their existing level of profits. If capitalists move a factory overseas in pursuit of lower costs, if they thereby lay off thousands, perhaps devastate an entire city or region or even country, no blame is held to attach to them; they are rarely accused of being greedy, for the right of capital to higher profits is generally held sacred in our society. Somehow it is contrived that it's not the capitalists who are to be blamed, but the governments or the workers or their unions. Very few question the logic of the capitalist complaint: "Give us tax breaks, loosen labor laws, but make sure you provide first-class infrastructure and educated workers—or else we'll just leave and show you who's really boss."
It is true that some defenders of the free market in recent years have begun to criticize instances in which governments and capitalists collude to give companies, usually big and well-connected companies, special concessions and benefits. It's now the fashion in these circles to criticize this crony capitalism, and point out that what they advocate, the rigors of genuine market competition, is something entirely different. Though I do not doubt that there are some honest defenders of free competition, especially among theorists, many of these newfound critics of crony capitalism seem to me suspect. This is because capitalists nearly always use their economic, and hence political, power to influence lawmaking in their favor. This has been going on for centuries, but it's only recently that defenders of free-market economics have discovered this fact. In a famous passage in The Wealth of Nations Adam Smith remarked that "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." But in most cases, this corporate welfare is defended or excused, especially by corporations themselves and their hired politicians.
Government favors to private firms occur on the international level, as we just saw, but also domestically, and local governments often engage in unseemly competition to see who can grant the most favors to bribe companies to place or keep their headquarters or manufacturing facilities in those jurisdictions. Of course blame does not attach solely to companies; the local governments offer a sad spectacle of stupidity, and one suspects that in many cases there are various concealed kickbacks to local politicians and officials, if not in actual money, then in prestige, opportunities and contacts. Of course all this is done by the governments supposedly on behalf of their citizens to provide jobs and necessary tax revenue, but what kind of lasting benefit is provided when these companies will up and leave if someone else offers them something better?
But there are other ways that those with political power influence lawmaking in their favor, more subtly and on a much grander scale. Competition between Costa Rica, Vietnam, India, and China for a factory or other facility could hardly exist if we did not have a largely globalized economy. While it is true that some globalization is hard to avoid today, this is by no means true in every case. In reality, the creation of a world market was in great part a deliberate political act accomplished by means of treaties, in recent decades by so-called free-trade agreements, the World Trade Organization, and so on.
There is no such thing as a purely natural economy. Economies always require a legal framework, and this legal framework can be changed. Thus the laws governing commerce, both internationally and domestically, are subject to manipulation by those possessing power, and that is precisely why so many free-trade pacts have been proposed in the last decades. It is in the interest of international business to create a favorable legal climate, one in which it is as easy to move jobs around as it is investments and profits, and in which national labor and environmental laws will not unduly hamper their profit making. The WTO and the many free-trade agreements are simply examples on a large scale of the same kind of thing as the giveaways by local governments to companies to induce them to locate in those cities. The regime of international free trade is a gift by national governments to corporations.
The fundamental principle of economics is not the law of supply and demand, real though that is. The fundamental economic principle is that there are numerous ways that economic processes can be conducted, and that these are shaped by law, culture, technology and other factors, as well as by the constants of human nature. But these constants of human nature, such as a desire to buy cheap and sell dear, never operate in a vacuum, but always within structures and limitations imposed by law, culture, and technology. And in turn these factors are shaped by human decisions, usually by the decisions of those with the most power, whether political or economic. But while culture usually changes slowly, law and technology can be more quickly manipulated to serve the interests of the powerful. Law always serves some interest, and if not the common good, then the private good of certain members of society. Law in a capitalist society generally serves the interest of the rich, and in the United States the shaping of law and policy in their interest has become both more obvious and more extreme in recent decades.
Intel and other companies kept their factories in Costa Rica as long as doing so served their interests. They had no more loyalty to that country than to the United States, and if they move to Vietnam or China or India, likewise they will have no loyalty to those nations. Their only loyalty is to their profit margin. As Pius XI noted in discussing international finance in Quadragesimo Anno, there is a "noxious and detestable `internationalism' or `international imperialism' in financial affairs, which holds that where a man's fortune is, there is his country" (#109). But aside from a needed change in public opinion that would cease to look benignly upon a company whenever it picks up and goes looking for a higher profit margin, there is needed a new legal regime, one that realizes what the purpose of economic activity is, and that an economic system whose chief priority is making sure corporate profits can always rise higher and higher is a perversion of an economy. Though prospects are not bright for achieving this change in our laws, nevertheless it is a worthy task for anyone seeking to promote the common good, both of their locale, of their country and even of the entire world.