I have long been a believer in Free
Trade. I understand the classic
comparative advantage – and in fact I personally have benefited greatly from
Free Trade. Essentially my job –
technical project manager spanning out-sourced supply chains – wouldn’t exist
without international free trade.
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And, undeniably, free trade has lifted
billions out of poverty. That is nothing
to scoff at.
The problem is that the United States’
comparative advantage lies with an increasingly smaller slice of the population
– the educated and lucky. You must be pretty
highly educated to compete nowadays and pretty lucky to get a chance to prove
yourself.
This wasn’t always the case. My parents (and grandparents) succeeded by
hard work and hustle. Of course, I still
think there is the possibility of succeeding this way, but it is harder to do
and almost impossible to get the chance.
In “olden days”, and in other countries, manufacturing – making things,
was a viable job for people. You could
make cars, or sprockets, or steel, or rubber bands, or furniture, or clothes,
or toys and earn enough to live.
Manufacturing – and increasingly large
parts of the service sector – are now outsourced to foreign workers because they
have a comparative advantage in wages (i.e. It is cheaper to employ them). As transportation costs shrink, computing
costs fall significantly and communication cost fall to nearly zero,
manufacturing chases the lowest cost of human capital.
The only time corporations don’t follow the
lowest wage is only where governments erect barriers. Either direct (like huge tariffs on imported
cars or rice or finished goods) or indirect (like China’s policy of ordering
planes from Boeing ONLY after Boeing agreed to make major parts in China).
And so we come to a set of unpalatable
outcomes.
·
Allow our country to stratify
into winners and losers with ever increasing rewards for the “winners” and ever
diminishing prospects for the “losers” (due in large part to international
trade).
·
Repeal the minimum wage and
allow international trade to essentially set a floor for wages. That floor may well be significantly less
that the current amounts and depress wages for all.
·
Establish a set of protected
manufacturing industries. However,
protection usually begets protection, and the cost of all goods will go
up. Sometimes significantly. This would also require a coordinated
agreement on a manufacturing policy that was bi-partisan – ha!
In the absence of planning, our country
will default to the first option. So the
question becomes, at what point does the inequality of opportunity lead to
internal turmoil – as happened in England last month. I don’t expect civil war or anything, but I
can believe in an increase in crime and discontent.
Even more important to me though is this: at what point do we stop being “Americans” as
in E pluribus unum – Out of Many One. As people fall out of the American Dream –
which I will concisely wrap up as “the belief my children will be better off
than me”.
As this dream becomes unobtainable, we want
to affix blame. Immigrants, China,
Democratic Socialists, Republican anti-Science, Gays, Muslims etc. We don’t blame them because we dislike these
groups, but because if we can find
blame we CAN FIX IT. But I think that any
remotely powerful politicians and their funders can manipulate anger to their
own ends.
The problem with our economy isn’t really
taxes or welfare or spending or defence.
There is a structural problem that won’t be fixed. Because the “winners” fund the government, and
it is to their advantage to keep the “losers” busy with the blame game. “Fixing” the problem will cost profits and so
will be fought by the powerful for a long time.
Hell, I don’t want my job to go away – if we demanded that even 25% of
software code was written or compiled in the United States, my job might be
made redundant. Even as it created thousands of jobs here, it might cost my job. The winners have both a motivation not to
change the game, and the power to make their desires heard.
So that is my 2cents.
My general thoughts on this were reinforced
by an article in Foreign Affairs – and this wrap up in a blog post (post here –
key paragraph below). And, so I put them to paper (electronically as it were). http://prestowitz.foreignpolicy.com/posts/2011/08/31/a_sign_of_a_coming_obama_failure
The logic of this has
been dramatically spelled out by Nobel prize-winning economist Michael Spence
in a recent article in Foreign Affairs.
In discussing the impact of globalization on income and employment, he notes
that of the 27 million U.S. jobs created between 1990 and 2008, 98 percent were
in the non-tradable sectors of the economy, and especially in government and
the health care industry which together accounted for nearly forty of those
newly created jobs. The third major area of job growth was home construction
which is, of course, also non-tradable. Spence emphasizes further that because
of the on-going restructuring of the global supply chain, "the range of
employment opportunities available in the tradable sector is declining, which
is limiting choices for U.S. workers in the middle-income bracket." Worse,
government, health care, construction, and financial services employment are
all highly unlikely to continue growing in the future as they have in the past.
Indeed, they must all be down-sized relative to the rest of the economy. But it
they can't continue growing as in the past and the United States continues its
poor performance in the tradable sectors, the reality is going to be high
unemployment for as far as the eye can see.
So salvation must come
from the tradable sector, and because two thirds of that sector is in goods
producing industries, it will be virtually impossible to achieve salvation
without a U.S. manufacturing renaissance. Yet, Bloom's note is a harbinger that
such a renaissance is not being seriously considered. Why not? (read article
for more).