Uncooperative data are a drag. When I was researching various ways in which overseas workers and companies are pulling ahead of those in America, I came across some unwelcome evidence. I looked up how many U.S.-based companies belonged to the Fortune Global 100 in 1995 and how many in 2005. I expected to find American companies sliding down the list, replaced by the Samsungs of the world, aggressive upstarts fueled by ambition, hungry customers new to the middle class, and cheap labor. But that's not what has been happening. In 1995, there were 24 U.S. companies in the Global 100. In 2005, there were 33. Corporate America has apparently been getting a bigger share, not a smaller share, of the world's business.
I also looked at patent data–often cited as a proxy of where creativity and innovation are taking place. Similar story there. In 1995, U.S.-based companies accounted for 55 percent of all patents filed in the United States. By 2004, it had fallen slightly, to 51 percent. That's a decline, yes, but hardly a red-alert warning of imminent collapse.
So is the notion of America's falling behind a bogus premise? You could argue that. Or you could look deeper. Here's what you can't tell from revenue rankings and patent data: where the growth and innovation that show up on the bottom line of U.S. corporations is taking place. Are those patents all coming from laboratories on American shores? Or are many of IBM's patents coming from engineers in India and Russia and eastern Europe? Here's a clue: Nearly half of IBM's engineers and technical specialists work outside the United States. Hiring trends are similar: While big U.S. firms like Microsoft, Accenture, and EDS are taking on modest numbers of American workers, their payrolls are mushrooming in places like India. Corporations closely guard the details of patent and employment data, but this much is obvious: American companies are becoming less American.
There's nothing wrong with that. Indian businessman Vivek Paul, who ran the North American branch of the Indian offshoring firm Wipro, held senior positions at General Electric, and is now a venture capitalist, has a poetic way of describing the inflow of jobs to countries like India and China: "Those countries in the past have had too small a share of the global economy. Now the share of the dollars going to those countries is getting closer to the share of souls in those countries." From a global perspective, there's a kind of social justice in that.
But there is another important trend, beyond offshoring and globalization, that many are missing: There's a growing wedge between U.S. companies and their American employees. What used to be good for General Motors, so to speak, also used to be good for the Americans who worked for General Motors. In many ways (putting labor disputes aside), the interests of U.S. companies and U.S. workers were closely aligned, especially when borders were harder to breach and trade seemed like more of a zero-sum game. Ron Hira, coauthor of Outsourcing America, points out that in the 1980s, when Japanese importers were grabbing U.S. market share from American automakers and electronics manufacturers, the CEOs of those companies went to Washington looking for help. And they got it, through legislation and regulatory relief. (Not that it helped them hold on to their market share in the face of imported products that were often better and cheaper.)
Today, there's a lot of hand-wringing over offshoring, disappearing pensions, and health benefits that deteriorate and cost more every year. But very few U.S. executives are asking much from Washington, or from anybody. That's because most U.S. companies are doing quite well—witness stock indexes like the S&P 500 that are approaching record highs—even if their American workers are worried about job security and finances. "There's a shift in the balance of power between workers and their companies," says Hira. "Nobody from industry is asking for help, because they're not losing anymore. They're taking." What they're taking, as everybody knows by now, is cheap, talented labor from low-cost countries like India and China. And that's one thing that helps American companies climb onto the Global 100 and stay there. "The fact that manufacturing jobs have been leaving the United States doesn't make us less competitive," says Dennis Nally, chairman of PricewaterhouseCoopers. "You could argue it makes us more competitive."
American companies that are struggling need to take even more from those helpful low-cost countries. What is good for General Motors these days is massive cost-cutting, to help reverse an enormous $10.6 billion loss in 2005 and keep the company afloat. And the way companies cut costs these days is by shipping any work that is transferable overseas and building stuff there, too. In the old days, of course, the fortunes of companies and their workers rose and fell in unison; manufacturers laid off U.S. workers when times were tough and rehired them when business picked up. But jobs that go overseas are gone forever, or at least until assembly line workers and engineers in China and India start to earn the same as their American counterparts. And that's not going to happen before the unemployment insurance runs out.Companies exist to make money, not to keep people employed. But U.S. companies can increasingly make money while bypassing American workers. "The fate of U.S. workers is no longer part of corporate decision making," says Hira. That sounds ominous, yet for Americans with the energy to get off the couch and pay attention, it's an opportunity. Those who are creative, entrepreneurial, well educated, and able to consistently learn the latest skills will thrive. But if you have the choice, it's probably better to be a stockholder of corporate America than an employee.
Percentage of U.S. patents earned by corporations
Source: U.S. Patent and Trademark Office