Posted on 09/30/2004 4:35:23 PM PDT by rmlew
Up to now, offshoring of American jobs has been a political flashpoint but, judging by the responses of both parties, has been adjudged by the powers that be to be just another annoying political issue, which changes nothing fundamental and should be handled the way political issues usually are: by jockeying for position within the established policy consensus.
The Democrats, quintessentially John Kerry, have sought to make the smallest policy proposals sufficient to position themselves as the good guys on this issue for those voters that care about it. The Republicans, because they are in office, must defend a status quo they are no more or less responsible for than the Democrats, and are defending it using the same arguments that have always been used on the free-trade issue, as if nothing has changed.
Both responses are perfectly rational within the confines of ordinary day-to-day Washington politics, which is precisely why they have occurred. Unfortunately, both are completely deluded, because offshoring is already setting off a political earthquake that will reshape American politics for a generation. For in reality, free trade is dead and the only question is which party will figure this out fast enough to collect the burial fee.
The key to understanding why free trade is dead is to be honest about the fundamental way free trade is experienced by Americans as citizens of a high-wage nation:
Free trade is cheap labor embodied in goods.
Naturally, everyone wants the labor they consume, whether directly or embodied in goods, to be cheap. But as a wage earner, they also want the labor that they are paid for to be expensive.
Whether this is “efficient,” as academic economists understand this term, or not is irrelevant to the politics. This is shown by the fact that in American history there have been long-lived and stable electoral coalitions producing both free-trade and protectionist outcomes. Economists' theories about the efficiency of free trade touch the way voters actually experience trade peripherally at best and flatly contradict it at worst.
What is relevant to the politics is that this analysis implies the possibility, in a democracy, of a stable political coalition in which one part of society treats itself to cheap labor at the expense of another part. So long as the enjoyers of cheap labor exceed the victims in number, this coalition is viable.
For example, one could have a coalition of everyone who is not a manufacturing worker (roughly 85% of the population) against everyone who is. Manufacturing workers suffer the competition from cheap foreign labor, everyone else enjoys the cheap foreign goods, and a majority is happy. At least in the short run, before everyone begins to suffer the consequences of a depleted industrial base.
You may already see what the problem is and where this is going. What if the percentage balance in the coalition isn't stable? What if we go from 15% of the population harmed and 85% benefited to 30/70? Or 50/50? Or 70/30 the other way? The coalition starts to fall apart.
Free-traders have an argument here: they will tell us that even if we go to 90% or even 100% of the population being impoverished by competition with cheap labor, we will still be better off because goods will be cheaper.
The problem is, as is intuitively obvious to any laid-off factory worker who has contemplated the cheap knick-knacks on sale at Wal-Mart, that the drop in cost of living never matches the drop in wages. Like many free-trade arguments, it is qualitatively true but quantitatively false. The mitigating factors mitigate; they just don’t mitigate enough.
Don't believe this? Let's count up how many people have voted against incumbents because they were unemployed, and compare this to how many have done so because they couldn't buy a pair of scissors for $.99. Has there ever been a demonstration in the streets about the latter?
Free traders might have half an argument here if inflation were a live political issue today, but it isn't. Allan Greenspan has been worrying about deflation, not inflation. And given that the biggest inflationary factor looming on the horizon is the coming collapse of the dollar under the weight of accumulated trade deficits, they're better off not raising the topic.
But back to our electoral math: what offshoring has done is to radically shift the percentages of the electorate who fall into the two categories. So this beggar-my-neighbor coalition is starting to fall apart.
Of course, this takes time, as offshoring all the tens of millions of jobs that can now be offshored cannot be done overnight.
But what doesn't take nearly that much time is for the fear that this is going to happen to ripple through the electorate. Right now, people are taking a wait-and-see attitude, wondering if this is going to be just another one of those crises that were supposed to end life as we know it that never actually happened.
The problem is, unlike running out of oil in 1973, this is actually going to happen. Don’t believe it? It’ll probably only take another two years of empirical data for the trend to become dispositive.
As a result, the cozy acquiescence of a majority of Americans in letting free trade destroy American wages sector-by-sector is going to end. The dividing line between the winners and the losers, which the winners thought, as recently as the dot-com boom of a few years ago, would remain stable, has grown fluid.
Worse, no-one really knows where it will one day solidify. So no-one knows – on a personal, let alone political level – how to protect themselves.
Basically, there is not much left of the American economy that is invulnerable to offshoring. There are, basically, these jobs:
1. Those services that must be performed in person: cooking, policing, bagging groceries, teaching school, prostitution etc.
2. Those activities, like construction, that are performed on physical objects too large or heavy to be economically shipped from abroad.
3. Those activities, like agriculture, mining, and transportation, that are performed on, or relative to, objects fixed in place.
4. Those activities, like the practice of law or advertising, that depend upon peculiarly American knowledge that foreigners don’t have. But even this is rapidly breaking down as law firms, for example, start to offshore work.
5. Activities of government impinging upon sovereign power, like the military, or democratic legitimacy, like Congress. But given our use of mercenaries (sorry, “civilian security contractors”) in Iraq, clearly this can be nibbled away at in surprising ways.
6. Industries where America enjoys significant technological superiority tied to local labor pools or educational institutions, a rapidly-shrinking category.
7. Owning capital. Although not really a job, it's at least an occupation, and so long as America maintains a political consensus that rules out significant expropriation of capital, owners of capital gain from consuming cheaper labor and lose nothing.
The problem is, this isn't enough. In particular, it isn't a high enough number of high-wage jobs, as most, though obviously not all, of the jobs in these seven categories are relatively low-paid. This is largely inevitable, since jobs that must be done by hand, like stocking a Wal-Mart, are difficult to automate to increase their productivity.
So our little coalition starts to fall apart. What happens next?
For a start, the bad news for Republicans is that the psychological bourgeoisie starts to shrink. I use this term to describe everyone in the economy who identifies emotionally with the owners of capital, whether or not a majority of their income is investment income. All those yuppie financial analysts who may now get offshored are an obvious example, but there are far more people in this category, people all over American suburbia.
The key psychological bargain such people have until now had with the system is that economic forces are something that happen to other people. Someone with this attitude can indulge an amazingly dispassionate concern with economic efficiency.
More obnoxiously, he can explain that the jobs being lost are only "bad" jobs, while the jobs being kept, like his, are worth keeping. This is a wonderful way to covertly congratulate himself that his existence is a worthwhile one while that of a blue-collar worker is not. Thus the galloping narcissism of the baby-boomers becomes an emotional motor of globalist economics.
But that party's over, soon. It probably has only one presidential election cycle to go.
The bad news for Democrats is that they sold out so completely to free trade under Clinton that they've thrown away their natural position, earned over 60 years, as the party that protects Americans from the rougher edges of capitalism. With the classic stupidity of the imitator, they embraced free trade just before the fad went sour.
Either party could be the first to turn on free trade and thus capture public support on this issue. The Democrats could follow Ralph Nader's idea’s; the Republicans, Pat Buchanan’s. The fact that these wildly different figures oppose free trade is a strength, not the weakness the Wall St. Journal supposes, as it means that ending free trade can be credibly sold to people on either end of the political spectrum. Or packaged into a nice balanced pitch for the middle.
You want a right-wing America First appeal? You got it. You want a hippie sob-story about exploited workers? You can have that instead. You want a moderate and reasonable “commitment to a middle-class society?” Done.
Once the issue heats up some more after a few more rounds of depressing job-creation numbers from the Bureau of Labor Statistics, the only thing that will be keeping the status quo in place is the corrupt bargain of the American political duopoly, in which each party agrees with the other to not make trade an issue. This bargain is intrinsically unstable because of the temptation to score politically by defecting from it, so one must assume one party must eventually defect from it.
The other will have no choice but to follow or face electoral extinction, and America’s experiment with free trade, which has outlived its Cold War purpose of bribing foreign nations to not go communist, will finally be over.
Wonderful news.
We are to become nurse maids while WHO defends us?
We will lob "Depends" at the enemy?
ping
.....sounds nice until you factor in Chinese working for 80 cents a day. Then your theory gets blown out of the water. This is where tarrifs come into play.
"Protectionism" (Tarrifs) are what was origionally supposed to fund Uncle Sham, before income taxes.
re: post #34. Great point.
How about my case, where I have my own government turning a blind eye to employers who hire criminal trespassers? Is this fair to me? I pay my help well, and pay FICA and all the other Gub-mint bull$hit taxes and regulatory fees. My closest competitor, 40 feet away, does not have to pay. GWB sucks on this issue. He is just as bad as his predecessors.
Thanks!
To all those worried about the capability of our country to defend itself in the world, they might consider the ability to sustain a military with no economy to support it. Our economy is as essential to our national defense as any of our military weapons. The economy supports the means to buy the weapon. No economy, no defense will be true over the long run. Welcome the terrorists in with a third world economy, keep buying Made in China!
Used to be that the bank at the top of the manufacturer's keiretsu would underwrite the R&D... isn't Toyota's Mitsui Bank?
Pretty close to my sentiments - no nukes dropped on Saudi's however. I think they could get the message with the Syrian and Iranian regimes changed.
Come over to try and make the site look like a haven for lunatics?
>When it isn't, I'll need to find another line of work
And that line of work will be?
Trade policy has always been set by national interests. It is in the national interest to compete and create the new as it always has.
As the quality in IT hardware and services declines in order to cut costs, the consumer or small business owner does not see the difference between domestic American products and services. If based on cost alone, it doesn't matter. The acceptance of poor quality service turns into a downward spiral of cost slashing and even further deteriorating quality in equipment and services.
The cultural differences offshore and "programmed" responses is very significant to those that are at least half-way knowledgeable about computer equipment. In only recent years has the bulk of computer manufacturing (not including specialized components and circuit boards which have been made overseas for quite a while) and support services been offshored. All of this cost savings have not been significantly been passed along to the consumers of their products except the extremely larger companies which purchase in such large quantities. The bulk of the savings is retained by the companies offshoring. Many of the companies offshoring (especially those offshoring some of the much more technical jobs such as financial analysts, engineering, etc.) are saving significant funds by offshoring, but the largest expenses have been with mid- and upper-level management whose salaries are grossly misaligned in comparison to the average and even technical employee. Greater funds could be saved by eliminating non-productive and redundant management staff or cutting the pay raises to the corporate executives who think that they deserve all of the funds that they are saving the companies when they should earn only a percentage...but ignore the fact that in actuality, they are gutting the long-term value of their companies at the advantage of short-term profits.
Also, there is a very continued push to bring in more experienced foreign technical workers (including engineers, nurses, and others) through the H-1B and L-1 visas. Corporations don't want to put the investment into assisting or supporting local employees who are going through technical and academic learning. Buy the workers for a couple of years, and then send them back. If it saves them bucks...why have to actually be a corporate leader/manager and work too hard developing and implementing cost savings through improvements in productivity and service efficiency...it is too much hard work...and nobody expects it.
Maybe American citizens should make corporate management more accountable to all of their stockholders and stakeholders. So many Americans own outright or own interests in stock or mutual funds, and it is time to actually make CEOs work at building companies and their long-term value rather than just building excuses and biding time until their forced (or ultimate) departure.
You are mistaking Hamilton's views if you believe he would make the same economic program for a young, underdeveloped nation with no money supply as for the most developed and technilogical nation in the world.
He had to ideal to move toward free trade but could not in an era where foreign trade terms were almost completely determined by governmental needs.
Competitive, highly productive and creative nations have nothing to fear from free trade. Actually no country does rather the fear is of the unfree trade policies which often lead to general enmiseration.
Trade barriers reduce income in the home country and throughout the rest of the world. It is an Iron Law and unavoidable. As a result of the lowered income abroad less is exported from here. So we sell less and income is reduced again. This cycle continues until a new equilibrium with lowered supplies and demands is reached.
Just because my profits go up when my factory's product is protected does not mean the increase is not offset by losses to the rest of the country. Tariffs are an income redistribution scheme.
Reducing trade barriers on the other hand RAISES income inside and Outside the nation reducing them.
This is a no-brainer.
Opponents to Free Trade cannot understand that barriers reduce income here and abroad. Or they don't care if their policies hurt us as long as they hurt someone else.
An economic policy of Malice.
Of course the average American benefits from the lower prices given by free trade. That is a ridiculous statement.
How much would gasoline cost if derived entirely from American wells? $10 a gallon? How deep a depression would result from oil prices like that? How much would it cost to heat your home or cool it with energy prices like that?
Don't let that Clinton fatigue extend to your brain.
Since you say that you clearly identify yourself as a prime jackass yourself. Imagine a twit attacking one of our greatest patriots, Washington's right hand man.
You obviously know nothing of Hamilton.
Reading all posts with interest.
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