You hear often that we "live in a global world now." You hear that "globalization" means we have to drop our wages and standards to match those in impoverished, Third-World countries. You hear that the "cost" of controlling pollution makes us uncompetitive in the world. Etc. Etc. Etc. It's inevitable – a force of nature – so don't fight it, they say. This is endlessly repeated as if we weren't in a "global" world when the first camel crossed a border or the first sailing ship crossed a sea. But since that first camel countries have enacted policies to make things better for their people.
Last Sunday's New York Times published an op-ed, "The Myth of Industrial Rebound," by Steven Rattner, one more wealthy Wall Street executive who revolved through the door from being an Obama administration official after he revolved through the door from being a Wall Street executive. In his op-ed Rattner accurately describes many of our economy's problems but concludes that we should let these things just happen to us because, "In a flattened world, there will always be another China."
Rattner points out that many of the new manufacturing jobs are low-wage. "This disturbing trend is particularly pronounced in the automobile industry. When Volkswagen opened a plant in Chattanooga ... the beginning wage for assembly line workers was $14.50 per hour, about half of what traditional, unionized workers employed by General Motors or Ford received." Meanwhile, "in Germany, the average autoworker earns $67 per hour. ... Volkswagen has moved production from a high-wage country (Germany) to a low-wage country (the United States)."
Rattner is correct that falling wages are slowing economic recovery. "These dispiriting wage trends are a central reason for the slow economic recovery; without sustained income growth, consumers can’t spend."
Rattner gets it that companies are extorting subsidies and concessions to locate here, writing "Hefty subsidies from federal, state and local government agencies often are required. Tennessee provided an estimated $577 million for Volkswagen — $288,500 per position! To get 1,000 Airbus jobs, Alabama assembled a benefits package of $158 million. ... Boeing has just used the threat of moving to a nonunion, low-wage state to win both a record subsidy package — $8.7 billion from Washington State — and labor concessions."
Rattner understands that the new free-trade regime gives low-wage, low-tax, low-law countries an advantage. "In Mexico, where each autoworker earned $7.80 per hour in 2012, auto industry officials say productivity is as high as in the United States, where total compensation costs were $45.34 per hour." And "Bombardier is now assembling Lear jets in Mexico, and later this year Cessna will start delivering Citation XLS+ business jets that were put together in China."
So Rattner accurately described the damage that we have done to our economy with these trade deals that freely let in goods made by underpaid workers and let our companies move jobs and factories to these countries – with no coordinated, national policies to respond.
Therefore ... What?
In conclusion, Rattner says we should do even more of what got us into the mess.
Wall-Street Rattner comes out against a coordinated industrial policy (which by the way should include measures to prevent extortion and coercion by giant companies). Rattner says, "...while subsidies to draw jobs have become a necessary evil, we should be rigorous about analyzing the value of these costs. And we must stop short of excessive meddling in the private sector, and particularly the notion of picking winners. (Think Solyndra or Fisker.)"
And then, the clincher. Mr. Wall Street calls for "more trade agreements to encourage foreign direct investment and help get closer to Mr. Obama’s seemingly unattainable goal of doubling our exports."
OK, what? Our previous trade agreements may have increased exports (good) but they have dramatically increased imports, costing us jobs, taxes, prosperity and risking entire key industries. They have massively increased our country's trade deficit, which drains our economy. The resulting imbalances have hurt the entire world's economy. See the post "Do Free-Trade Agreements Create Jobs?" where I wrote about the studies showing how the North American Free-Trade Agreement (NAFTA), the recent Korea agreement, and especially our situation with China have all worked against our economy (while, of course, enriching our billionaires and Wall Street.)
Rattner concludes, "[T]hat is the essence of our challenge: In a flattened world, there will always be another China."
Is It Inevitable That A "Global" Economy Means We Must Lower Wages And Standards?
Rattner presents all the bad things brought to us by "free-trade" globalism as a fait accompli. Rattner and others think this recent occurrence in history is inevitable, something that nothing can change. It's here, it's a force of nature, so don't try to change it with policies...
But as I said above, we have lived in a global world since the first camel crossed a border and the first sailing ship crossed a sea. Successful countries didn't used to and don't just let their key industries (and wages and tax base) leave because something is cheaper somewhere else. They understood that in the long term it is important to be able to do the things that countries do to make a living. So they "protect" themselves, and develop national strategies to remain competitive in the world.
The Chinese government subsidizes their industries in so many ways, including currency manipulation, but other ways, too. They also plan out industrial sectors and get the right people there and the right suppliers and the right power grid and the right transportation and the right everything else – it's called industrial economic policy. Our government is prohibited from doing that because it would be, as Rattner said, "picking winners and losers." The result, of course, is that China is capturing ("picking") the industrial ecosystems for the industries of the future.
I'd like our government (We the People) to pick winners and help build key future industries, such as green energy, green manufacturing, electric and alternative fuel vehicles, advanced batteries, 3D printing, high-speed rail, space vehicles and the rest. We need that.
We have a huge trade deficit because of this practice of closing our factories and moving them across borders to avoid our taxes and pollution controls ... and our democracy. This is dragging our economy down. The 2012 trade deficit was $540 billion. Just imagine our economy today if factories and service companies here had in 2012 received $540 billion of orders – and in 2013 another $500+ billion, and were anticipating even more in 2014 and beyond. THAT is what our trade deficit means to our economy. THAT is what closing factories here and moving them there and bringing the same stuff back here to sell in the same stores has done to our economy.
We have to stop it. It is not inevitable that we do that; it is a policy choice. In the United States We the People are supposed to be the ones making the policy choices and it is supposed to be for our benefit.