Category Archives: Trade

It’s Exploitation, Stupid!

A consensus has now emerged as to why Donald Trump is president, why Britain voted to leave the EU, and why Marine Le Pen is ascendant in France.  Some thoughtful analyses have come from the left.  If you are a Democratic Party strategist and you attribute the “Trump disaster” to racism and xenophobia, you are hopelessly behind the curve.  This is not a strategy that will prevail in 2018.

Indeed, if you have been reading anything at all on the topic, you know that the relevant new divide in politics is between rural and urban voters.  In America this might have something to do with racial politics, but the phenomenon is global.  Points for originality go to David Wong, who spotted the shift a month before the election – writing in, yes, Cracked and strongly recommend for youth readers.

The rural folk with the Trump signs in their yards say their way of life is dying, and you smirk and say what they really mean is that blacks and gays are finally getting equal rights and they hate it. But I’m telling you, they say their way of life is dying because their way of life is dying. It’s not their imagination.

With the benefit of hindsight and some classical history, Wong might have written this analysis in City Journal or this one in The Guardian.  Read one or the other if you identify as right or left, respectively.  They say the same thing.

And what I am here to say is that the Midwest is not an exotic place. It isn’t a benighted region of unknowable people and mysterious urges. It isn’t backward or hopelessly superstitious or hostile to learning. It is solid, familiar, ordinary America, and Democrats can have no excuse for not seeing the wave of heartland rage that swamped them last November.

The really interesting part, though, is the intersection of liberal values with urban life and the global economy.  Humanity has now produced a strain of pure liberalism, combining classical liberal laissez faire economics with “social liberal” values in the American sense.  If Trump supporters are the losers from global trade, these urbanites are the winners.  You may have seen this map depicting the archipelago of Clinton voters.

You could draw the same map of Europe, and someone has – a geographer by the name of Christophe Guilluy.  The mayors of London and Paris have more in common with each other than with ordinary British or French workers.

Charles Murray would have you believe these people are the “cognitive elite,” blessed with superior intellectual gifts.  Jeremiah is not so sure.  Maybe some are internet entrepreneurs, but it seems more likely they are simply attached like leeches to lucrative sectors like banking and government – what you might call the “ruling class.”  Here is Victor Hansen again, from City Journal:

The elite in Washington and Menlo Park appreciate the fresh grapes and arugula that they purchase at Whole Foods. Someone mined the granite used in their expensive kitchen counters and cut the timber for their hardwood floors. The fuel in their hybrid cars continues to come from refined oil.

For people who think about public policy, this is a conundrum – how to enjoy the benefits of global trade without producing a society that looks like The Hunger Games.  On the other hand, the beneficiaries of this new economy are not losing sleep over it.

French elites have convinced themselves that their social supremacy rests not on their economic might but on their common decency. Doing so allows them to “present the losers of globalization as embittered people who have problems with diversity,” says Guilluy. It’s not our privilege that the French deplorables resent, the elites claim; it’s the color of some of our employees’ skin.

Thus it transpires that social liberalism is congruent with economic liberalism, i.e., exploitation.  Sure, we love to give immigrants a chance.  Whether they’re migrant farm workers or H-1B engineers, immigration drives down labor costs.  The same goes for offshore jobs.  Everyone must have a fair shot at driving down labor costs, while the urban elite reaps the profits.

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Centrist Donald?

GoodwinDonald Trump has an interesting position on free trade. He is against the TPP, really down on NAFTA, and accuses China of currency manipulation.

For a man touted as the Fox News poster boy, being antitrade is pretty far left. Think unions, Senator Schumer, and this leftist cartoon.

The right is blindly pro-trade, assuming that what’s good for business is always good for America. Jeremiah has discussed this conflation, here. The last business candidate to stand up against free trade was Ross Perot.

On the other hand, you can’t hope to build a wall around your national market. That’s a tactic, not a strategy – although China has done pretty well with it. The balance between trade and protectionism boils down to negotiation.

Trump’s native mode of expression is bombast, so it’s hard to tell, but this is actually a nuanced position. Consider the current debate in Congress. The Democrats are blocking President Obama, for the usual antitrade reasons, and the Republicans are afraid of a “bad deal.”

It is doubtful the race will turn on trade policy, but The Donald gets points for the first non-stereotyped idea of the season. Maybe he can get an endorsement from Michael Moore.

See also: Jeremiah on Protectionism

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Triangulation

A fire in a garment factory in Bangladesh has killed more than one hundred workers.  Union watchers will recall the Triangle Fire in New York, which killed garment workers in tragically similar circumstances.  There were few exits and no fire escape.

Triangle_Fire_Coalition_logo

This is where unions are needed.  Instead of fighting a zero-sum game with bankrupt factories in America, unions should be organizing these third-world sweatshops.  Raising standards for the poorest workers will bring the greatest benefit for all – and reducing labor cost differentials will help to keep jobs at home.

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Pan-Am FTA

If you have been following the campaign, you did not hear anything new in the last debate.  These set-piece events are about style, not substance.  There was one point, though, that caught us by surprise – Governor Romney’s call for more trade with South America!

According to the IMF, real per-capita GDP is higher throughout South America than in China.  Among many advantages, we found it interesting that Romney would cite “the language and the time zone.”  Compatible time – Sao Paolo is actually an hour ahead of New York – means no jet lag, and Miami is already a hub of South American commerce.

Jeremiah sees a lot of potential in this proposal, and a tacit admission that Spanish is an advantage for America.

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Made in America

President Obama once asked the late Steve Jobs why the iPhone wasn’t made in America.  The answer was a terse, “those jobs aren’t coming back.”  This week, as unrest simmered in Foxconn city, we wondered how much profit Apple was making from oppressed Chinese workers.

Not much, it turns out.  Technology experts reckon each iPhone has only about four hours of labor content, for an estimated $60 cost savings versus American labor.  Multiply that by millions of iPhones, and it’s a lot of money, but still a fraction of the total cost.

The real reason those jobs aren’t coming back was explored in January, by the New York Times.  This is a sobering article, and anyone with ideas about “saving the middle class” should read it.  The short version is that China enjoys huge advantages in terms of infrastructure, scale, education, and logistics.  No approach to industrial policy in America makes sense unless it can address these advantages and, since they were once American advantages, how we lost them.

“Chinese schools graduate roughly 600,000 engineers a year, versus about 70,000 in the United States.”

Not as sober is the reply from Alexander Cockburn.  He is too eager to believe that greedy Mr. Jobs sold out his fellow Americans for an extra penny of EPS, and he disregards the fact that Apple must sell into a global market, against global competitors – or maybe he just didn’t read the article.  Finally, The Atlantic takes up the challenge and offers some practical ideas.

America needs an industrial policy, but this is a tricky area, and our results haven’t been good.  We need enough government support to offset that of our competitors – think Boeing versus EADS, or GM versus Toyota – but not so much that it interferes with market mechanisms.  Government support also invites special pleading, if not flat-out corruption – think Solyndra.

The Atlantic observes that, while the right dislikes government “picking winners and losers” at the federal level, they accept industrial policy at the state level.  This is actually not inconsistent, if you look at results.  Governors are good at it, and Washington is not.  Maybe that’s the answer.  One wonders if state funding might have kept the iPhone glass business in New York.

America also needs educational reform.  China has an advantage in skilled labor, midlevel engineers, and industrial engineers.  These are not the sexy jobs American kids go to college for, any more than they want to assemble iPhones – or pick strawberries, for that matter.  So, there is a disconnect between wanting the factories in America, and actually staffing them.

One criticism of vocational streaming is that, like generals preparing for the previous war, it can produce an army of obsolete graduates.  On the other hand, America has never seen a glut of computer programmers.  Silicon Valley perennially begs CIS for more Indian kids to have H1-B visas.  Here, a combination of vouchers, incentives – and a culture shift – might do the trick.

American trade negotiators could also press China, under threat of tariffs, to improve conditions for Chinese workers.  We would have the moral high ground, helping them to become more comfortable and less competitive.  Unfortunately, we would have only our American consumer market as leverage – in Apple’s case, less than half their sales.

Jobs’ blunt assessment may be the final word.  The supply chain, the infrastructure, a growing consumer base, and even the supply of minerals favors China and the Pacific region.  This is a process that started thirty years ago, with competition from Japan.  Even if we could reverse it, we would need another thirty years to rebuild.

The best scenario for America would be the emergence of a new and unforeseen industry.  Al Gore, and now President Obama, thought it might be “green energy,” but this has proved not to be a game changer, in terms of global competition or employment.  By definition, an “unforeseen industry”  is not amenable to central planning.

We have a culture that encourages risk, forgives failure, and celebrates success.

Google, Facebook, and Amazon are made in America because we have first-rate universities and a system of free enterprise that favors innovation.  We have a thriving venture capital industry, light regulation, low barriers to entry, and pragmatic bankruptcy laws.  We have a culture that encourages risk, forgives failure, and celebrates success.  This is our “comparative advantage.”  If we have no other industrial policy, we should at least cultivate this one.

See also:  On Protectionism

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On Unions

Unions are a vital part of American capitalism.  Conservatives today see them as an enemy, but unions historically have strengthened capitalism by providing a way for workers to participate in the system.

In the early days of industrialization, factory owners exploited the workers.  Wages were low, hours were long, and working conditions were unsafe.  The free market system enforced this exploitation.  If one factory offered higher wages, they would lose business to a lower-priced competitor.  It was a “race to the bottom,” with no protection for the workers.

The Marxist solution was for workers to take over the factories.  This idea turned out to be a failure, and Russian workers soon ended up worse off than before.  The “workers” that took over were just as ruthless as the old bosses, and less competent.

Marx thought that capitalism itself was to blame.  He can be forgiven, based on what he saw in the late nineteenth century.  It was not a glorious period in the development of capitalism.

In America, workers were able to effect change within the system.  They formed unions and demanded their rights through collective action.  Without unions, capitalism in America might have suffered the same fate as in Russia.  Indeed, many union organizers were Marxists.  The triumph of American capitalism was in achieving a balance between the needs of factory workers and owners.

Rather than collectivize the whole economy, as Marx advocated, unions are a little bit of collectivism within our free market system.  They allow the workers to protect themselves instead of demanding, say, wages fixed by the government.

One of the principal functions of the National Labor Relations Board (NLRB) is to determine, through secret-ballot elections, the free choice of employees regarding whether or not they wish to be represented by a union in dealing with their employers, and if they do wish to be, by which union. 

Today, all managers know that good business depends on good labor relations.  Even where there is no union, there are practical reasons to keep workers happy.  The German economy is a wonderful example of labor and management working together, and competing successfully against foreign companies.

Policy makers wishing to protect our capitalist system (Republicans) often assume this means protecting “management.”  That’s not always true.  Labor and management must work together.  The role of public policy is to keep the playing field level.  Just as government must not choose winners and losers among companies, it must not upset the balance between labor and management.

Democrats make the same mistake.  They assume that protecting the workers means protecting the unions.  In the construction industry, unions are entrenched and block entry to new workers.  This is a case where the union may be good for its members, but not workers in general.

Union power can become unbalanced in various ways, including – too weak, too strong, two-tier unions, and public sector unions.

In the case of General Motors, the UAW became too strong and killed the golden goose.  The company went bankrupt because management made concessions they could not afford.  In other industries, like food processing, unions are weak and working conditions are dangerous.  The food industry also takes advantage of illegal immigrants.

To address the problem of too-costly concessions, the UAW and other unions have adopted a “two tier” approach.  In a two-tier union, older members enjoy the benefit of certain concessions not shared with new members.  If these second-tier members conclude that the union does not represent their interests, they may split and form a new union.  Here again, what’s good for the union is not always what’s good for the worker.

Finally, we have public sector unions, which represent people in government jobs.  This situation presents a moral hazard because the “managers” are elected officials and the “owners” are taxpayers.  Many state governments have gotten into dire financial trouble as a result.

Various agencies, such as the NLRB, EEOC, OLMS and OSHA, are charged with protecting American workers and maintaining a balance of power with management.  As these agencies become politicized, and overstep their legal mandate – then American capitalism will suffer, and the workers will suffer, too.

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Boeing 0, Airbus 1

The Boeing case is a good example of what Jeremiah calls “squabbling over the spoils.”  The National Labor Relations Board has enjoined Boeing from opening a new facility in South Carolina, claiming that the move unjustly punishes unionized workers at another facility in Washington.  Roughly 8,000 jobs hang, unfilled, in the balance.  Washington is a “blue” state, South Carolina a “red” one.

So, is this a victory for union labor?  No.  It is a victory for Airbus, Boeing’s European rival. Instead of going forth to take market share away from Airbus, and maybe create more jobs all around, the mentality of American decline says, “Let’s fight hard over our slice because the pie is only getting smaller.”

In the end, we’ll have an iconic American company laid low by expensive labor, crushed by foreign competition, and in need of a government bailout.  Now, where have we seen that before?

See Also: Boeing Threat to American Enterprise.  Nice to see the union’s perspective stated in terms of American competitiveness, instead of class-war rhetoric.

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