Normally I wouldn't post an item on modern politics on any of my blogs, but here I'm making an exception. This is probably even more exceptional as I'm posting that item here, on Lex Anteinternet, which is supposed to have a historical focus. Be that as it may, there's some connection with the focus of the blog here, so its not completely off topic, if darned near so.
Recently, while travelling about, I was listening to podcasts of the Sunday morning talk shows. The focus on both Meet The Press and This Week was the economy, with Republican and Democratic spokesmen taking shots at each other about that topic, and more specifically, going after each other on job loss. If you were to listen to the Democrats you'd hear that Mitt Romney is a poor choice for president as, they claim, he's a "corporate raider" whose business practices resulted in jobs being exported overseas. If, on the other hand, you were to listen to the Republicans you'd hear that President Obama is directly responsible for tax policies that are causing jobs to go overseas.
Well, what this really demonstrates is either the poor state of the American public's understanding of long term economics or, perhaps more optimistically, an insulting level of the assumption of the misunderstanding of that topic by both political parties. At any rate, almost nothing about the topic of job flight to other nations is correctly stated, and the vague solutions proposed by both parties operate with a deficit of understanding on that topic.
So, what is the truth of the topic? And what are the solutions, if any? And do we even really want solutions?
Well, to start off with, lets put this in a historical framework. The often repeated claims that the sitting President is wholly responsible for job flight fails to acknowledge that this trend isn't recent, and isn't even close to being recent. It basically started in the 1950s, and in a way that's significant to the current debate.
Prior to the 1950s, the United States was a rising manufacturing power, even in spite of the Great Depression which put a damper on it. By World War One US manufacturing capacity was so vast that the United States could legitimately make the claim of being the Arsenal of Democracy. Starting off with an arms deficit, which it really never made up during the war, the US was nonetheless exporting arms to the Allied Powers during the war. During World War Two this became so much the case that the US manufacturing capacity dwarfed that of any other belligerent. The war itself left the United States the only really intact manufacturing power, which was responsible in large part for the happy times of American manufacturing of the 1950s and 1960s.
World War One vintage poster.
From the late 1940s through the mid 1960s, Japan was associated with bad junk. "Made In Japan" was a joke for really lousy trinket material, but in fairness this was stuff that we'd once made here in the United States. How did that occur?
Well, after Europe was bombed into rubble during World War Two, it really had a diminished manufacturing capacity. We had a vast one, as our factories had expanded during the war. That left us making most of the nifty stuff that we had formerly competed with Europe to make. Not all, of course, but most. In turn, we no longer needed or wanted the really poor paying cheap manufacturing jobs we once did. And, Americans coming out of the war no longer wanted to work those jobs anyhow. So they went to the more desperate, the Japanese, who had a much more primitive economy going into the war, and whose economy had been destroyed by the war. They need the jobs and were happy to take them.
Rural poor in post war Japan, photograph by my father, circa 1954.
Of course, the Japanese were not ignorant as to much more advanced manufacturing, as World War Two had proven, and in the natural order of things, they began to rebuild the economy of Japan and its manufacturing abilities. By the 1960s they were making automobiles, motorcycles, camera equipment, and airplanes that rivaled any we were making. We didn't notice this, however, until the 1970s, when our own economy began to really suffer.
The news and commentary from the 1970s sounded a lot like that now, except that Japan filled in for China in these regards. With the gas crisis of the 1970s coming in, Americans began to turn towards Japanese cars which were well made and fuel efficient. Soon thereafter, it seemed everything was made in Japan. We began to loose sections of the global economy we'd once dominated, and we've never regained our prior footing. We never will either.
But, things being what they are, the predictions that the Japanese would dominate the global economy, and even re-militarize, turned out to be completely false. By the 1980s the Japanese had shot their economic bolt. Basically regaining 40 lost years of economic advancement, they caught up with us, and then joined in with our problems. The Japanese no longer manufactured cheap junk, but quality items. The cheap junk section of the economy had moved to the Asian mainland. It's still there. But. . . a lot of good stuff is coming out of Asia also, which probably means. . . .
Anyhow, what this meant is that a lot of our good manufacturing jobs were competing by the 1970s with the same sectors in Japan. And both the Japanese and the American companies that occupied these positions were not shy about moving manufacturing around to attempt to compete. This began to accelerate in the 1980s.
Added to that, in the 1980s the United States, Canada and Mexico entered into the North American Free Trade treaty, which operated to cause all three North American nations to be one big free trade zone. The reasons for entering into this are varied, but frankly some of them were never really well publicized in the first place. As to Canada and the United States, the union made a great deal of sense, as Canada and the US were one single market anyway. But in the case of Mexico this was simply not true. Mexico still had a lot of state control over sections of its economy, and a large section of the Mexican population was desperately poor. It was this last item that formed part of the unspoken American basis for entering into the treaty.
By the 1970s the US was experiencing a major influx of illegal immigration from Mexico. Illegal entrants came up seeking work that paid better than the very low wages they received in Mexico, or in some cases just to find work at all. NAFTA had the unspoken hope that it would cause the lower paid manufacturing jobs of the US and Canada to emigrate to Mexico and provide some work for Mexicans, which, it was hoped, would in turn result in a boosted Mexican economy long term, as with the earlier example of Japan. This meant, frankly, that US jobs would go to Mexico, which we knew, but we were okay with at the time. Or, rather, the policy makers were okay with it. And indeed, it might have worked. For the first time in its history the majority of Mexicans are in the middle class now, a real achievement. And illegal immigration is slowing down.
All that (i.e., NAFTA) may be fine, but it also is based on a set of fairly false assumptions, in so far as it pertains to the workforce in the United States. The first of those is that these jobs are ones we either do not want, or that Americans will not do. There's ample evidence that Americans will do about any job, and indeed just as these types of jobs are entry level jobs for entire economies, they also may remain entry level jobs for many Americans in depressed areas. Rather, what the truth of the matter is that Americans either will not, or economically cannot, do many of these jobs for the wages employers are willing to pay.
That Americans will work some fairly rough jobs, and low paying jobs, is more than amply demonstrated. There are entire classes of employment which pay relatively low, but for which a person can still get by, and which are sought after. Being in agriculture, I've noted that cowboy is one such job. I've seen quite a few city kids become so enamored with it that they make it a career, even though it pays very little, and there's almost now way to become the owner of the agricultural unit yourself. After a few years you'd think these kids were born on ranches, but they were not, and had no exposure to it at all until they were in their teens. Many other outdoor jobs, such as Park Ranger, Game Warden, Forest Ranger, fit into the same category, as they pay very little, but those who work the jobs love them. Some other jobs, such as teacher, and writer, are similar in these regards.
And Americans will definitely do very hard work if it pays. In this region, hundreds of men are employed on drilling rigs in conditions that involve long hours and dirty hard work. It pays very well, however, so they do it.
What this means is that Americans will do almost any job, either out of love for the job, or money, but they frankly can't work for the very low levels that the exported jobs entail. That brings us back to the main topic.
Contrary to what the Republicans claim, American corporate tax policy is not going to have any effect on the exportation of American jobs overseas. None.; And, contrary to what the Democrats seem to think, businesses do not export jobs overseas for jollies or because they're unpatriotic. It's completely caused by another topic.
Wages and benefits. That's what causes it.
All manufacturing today is in a global economy, and therefore every worker everywhere is competing against every other one. And every business is competing against every other business. A shop making t-shirts in Bangor Maine is competing against those in Bangladesh. That's the reality of it. Tax rates are drop in the bucket in this context. And business often have very little option other than to go overseas or die.
So, that being the case, what can we really do to keep jobs here? And do we really want to.
Answering the second question first, I'd say yes, but we must first concede that many economist argue the opposite. That is, certain economist have argued that a country shouldn't strive to keep the really low level manufacturing jobs (or agricultural jobs for that matter), and that an advanced economy cannot.
I don't agree with that, but beyond simply not agreeing with it, I'd note that the American economy is not as advanced as we like to think. Entire demographic sectors of the American population have never participated in the greater economy, and these are effectively our own third work pockets, I'm sorry to say. Until these sections of the nation have actually risen out of poverty, we remain in the situation of needing the same type of jobs that are going to China presently. So, at least from my point of view, such jobs are necessary.
And, in our modern age, such jobs have proven to be an amazingly rapid path to technological innovation. As things become more and more technological, anything now made has the ability to create a leap of some sort. In some ways, there is no more cheap junk. The trinket maker of today is working in advanced manufacturing tomorrow. Lose any job, and you lose the ability to innovate.
So what can we do. Are the Republicans correct that adjusting the corporate tax rates will bring jobs back home? No. Are the Democrats correct that business men are just big meanies? No. What would have to be done is to basically level the playing field as to wages paid to the employees of our primary global competitors. And that can't be done in a punitive way, which would do little other than to spark some sort of tariff war (which would be a risk of my suggestion below in any event), a move which has always proven to be destructive to the global economy in the past.
Basically, therefore, what you have to do is look at the wage rates and benefits paid to foreign workers, and see what they are and why. If the minimum wage in the United States is $7.25/hour, and it is, and foreign competitors are paying their employees $1.00 day, that's an advantage that foreign workplace has against the American workplace that has to be taken into account. Likewise, if a certain type of job in the US, due to unions or custom, comes with certain benefits that effectively boost what the employee makes in real terms, on an hourly basis, that has to be taken into account. And if there are laws that really impact the cost of an item, such as workplace safety or environmental laws, that should be taken into account. And that can be taken into account in the form of a tariff seeking to simply level the playing field.
So, by way of an example, if a U.S. manufacture finds that raw price of a widget's materials is $5.00, but the cost of labor and law compliance adds $10.00 to it in the US, but only $1.00 to it in China, what we have is a $9.00 difference based solely on external fictional factors. So, taxing the widget $9.00 levels the playing field. If there are other advantages to manufacturing in China after that, whatever they would be, they still will. If they will not, they won't. And if there is an advantage to manufacturing in China, the tariff rate would mean that the Chinese might as well pay their workers a decent rate by Western standards or be taxed, and that they might as well have environmental and labor provisions that are the equivalent of ours, as they'd be paying for them anyhow.
That's the solution as I see it. Of course, the problem with this solution is that it would take an enormous bureaucracy to puzzle the tax rates out. I suppose that could be funded by the tariff itself, but that wouldn't be easy. Still, maybe it would be a better solution that claiming that the corporate tax rate or mean businessmen are to blame. It wouldn't be perfect, and it would have the unfortunate result of perhaps punishing poor foreign workers who need their jobs, but might lose them. However, at least discussing it in this context might be productive in and of itself, so that the real cause and effect of things is looked at, rather than simple reductions that don't really reflect the realities of the situation.
No comments:
Post a Comment