Marking the Fourth as a Day of Interdependence

Lots of people will wave Old Glory today, the Fourth of July, but you couldn’t blame corporate America if it’s inspired to wave a few foreign flags instead.

After all, foreign affiliates of U.S. companies rang up $3 trillion in sales last year, according to the federal Bureau of Economic Analysis. And profits are soaring overseas, up 55% in the last year and now running at a rate of $250 billion annually for majority-owned U.S. affiliate firms.

Joseph Quinlan, a Bank of America economist, rightly asserts that these figures -- and not the much-maligned U.S. trade deficit -- “are the true measure of how American firms compete around the world.”

The overseas branches are hiring too. The 24,000 affiliates now have more than 8 million employees in all corners of the globe, paying them more than $200 billion annually in the aggregate.

Yet back home, the wage situation is decidedly less robust.

Even with the employment picture improving modestly -- the Labor Department reported Friday that a net 112,000 jobs were added in June -- few workers’ wallets are being fattened. In fact, in the last two years, hourly wages have shrunk 0.8% when adjusted for inflation. And with energy and food prices having risen this year, it will now be harder for the majority of U.S. workers to raise their standard of living.

It is a curious phenomenon. In past economic cycles, workers typically benefited from a recovery like the one underway. But this time, “private employers seem to be under little pressure to pay higher wages,” says Daniel Mitchell, a professor at UCLA’s Anderson School of Management.

Mitchell and other economists cite myriad reasons for the trend, including the decline of labor unions and employer attitudes that have sadly devolved from a sense of loyalty and family to the sort of traits found in a “Dilbert” cartoon.

But there is another factor too: the inexorable push by U.S. companies to expand their presence overseas.

“The fingerprints of globalization are ubiquitous on this issue,” says Jared Bernstein of the Economic Policy Institute, a Washington think tank backed by organized labor.

For one thing, a global economy means that companies look at the world as a global hiring hall.

“Introducing millions of skilled workers and college graduates who will work for one-tenth the pay and benefits of Americans,” Bernstein says, “is an implicit supply shock.”

He’s not simply talking about outsourcing, the practice in which U.S. companies are hiring droves of workers in India, the Philippines and elsewhere to handle phone center and software services on the cheap. The pattern of global development goes much deeper than that.

Above all, U.S. companies are expanding abroad -- and hiring abroad -- because that’s where the fastest-growing markets are. Most of the biggest U.S. companies, including Procter & Gamble Co., IBM Corp., Caterpillar Inc., Coca-Cola Co. and Exxon Mobil Corp., gain more than half their sales and income outside the United States. They hire locally to serve local customers.

Take 3M Co., whose smorgasbord of products includes Scotch tape as well as medical equipment. It earns more in the Asia-Pacific region these days than it does in the United States, where it was founded more than a century ago.

Given that, it’s not surprising that 3M’s Asia-Pacific employment has grown 2.6% over the last three years while its U.S. employment has declined by 7%.

U.S. corporations -- sensitive to the delicate public relations and politics of investing overseas -- are quick to claim the benefits of globalization. Essentially, the argument boils down to this: The more business that companies generate overseas, the more high-end opportunities they create back home.

3M, for instance, notes that most of its products originate in the United States, where it has 6,000 technical employees on the payroll at its research centers.

FedEx Corp., the package delivery firm, offers a similar view of things. The company reported recently that its profit was surging, thanks mainly to the expansion of its international business, which now accounts for 23% of its $22.5 billion in annual revenue.

“We are involved in a rapidly integrating world,” says Gene Huang, the Memphis, Tenn.-based company’s chief economist.

Yet, Huang adds, it’s not just workers abroad who are cashing in as a result. As FedEx’s global operations grow, the company is adding employees in the United States to improve its communications and transportation networks.

Edward Yardeni of Prudential Equity Group is among those economists sold on the concept.

“As the economies of China and India and Eastern Europe develop,” he says, “we all do well and jobs are created in the U.S.”

In theory, he’s right. But as the wage statistics make clear, the mass of U.S. employees aren’t yet enjoying their slice of corporate America’s good fortunes around the world.

Whether they eventually get fed their share will determine how glorious future Fourth of July celebrations will be.

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James Flanigan can be reached at jim.flanigan @latimes.com. For previous columns go to latimes.com /flanigan.