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.
Ping
Ping to read later
A presidential candidate who campaigns on a platform of stopping illegal immigration, ending free trade and nuking Saudi Arabia would be so far ahead in the polls that he could tell the debate commisssion to "Go to Hell".
Free trade will be fine. But we've got to go back and take a good look at how we've implemented it.
We should only trade freely with nations that share our values and commitment to freedom. Free trade with any other nations only invites the kind of one sided trade we're experiencing with China.
Bump for later
Neither Bush nor Peroutka have this common sense. The CP has become knee-jerk isolationist.
It's not in our interest to artificially prop up industries that are no longer profitable.
Make America competitive by repealing regulations and keeping taxes low--don't try to step in front of an economic train with new regulations that limit Americans' economic freedom. Protectionism always fails in the end.
don't try to step in front of an economic train with new regulations that limit Americans' economic freedom. Protectionism always fails in the end.
Tell that to Alexander Hamilton.
Tell those americans working in foreign auto plants that make light trucks. the tariff on light truck imports is the reason why Toyota, Nissan, etc al, are building pickups in Texas and Alabama.
if the current free trade policies continue - we will lose the private sector middle class in the US.
I have always thought that a good experiment would be to write our trade laws using other countries laws. For instance Japan's trade laws would be translated into English and then handed over to them for prompt attention. Of course that won't happen because it may get them mad enough at us to not buy our debt!
Good article, but I have to disagree that agricultural and mining jobs are "immune" to offshoring.
Imported foods undercut domestic production,
And other imported goods undercut domestic demand for minerals and metals such as copper, lead, iron, coal, etc. etc. that are used as raw materials in manufacturing.
Business only exists because it is profitable. When it ceases to be profitable, it ends. Protectionism is an attempt to make an end-run around this rule, and ultimately it fails.
You would have the government pick losers and winners.
What benefits the steel industry comes at the expense of the auto industry, not to mention consumers. What's good for preserving manufacturing that is no longer economically sustainable is bad for farmers, who rely on exports to make a living.
Where I live agriculture makes up most of the economy, but that does not keep Mexican tomatoes off the store shelf. This author has a pretty good handle on the truth despite that.
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.
Hope the Republicans figure this out before it is too late.
so Toyota and Nissan sells those pickups they make in the US at a loss, is that it?
tell us who benefits from the tech industry moving offshore? those were supposed to be the jobs of the future, when manufacturing left the US. what's going to replace tech and knowledge jobs? more service jobs (low pay), more government jobs, more health care workers, more real estate agents?
So perhaps someone can illuminate for me just how many nations support the concept expressed in the 2nd Amendment?
Trading with the enemy leads to "unintended consequences."
No, no one does that. But if we follow your plans to make their steel more expensive, they might shut down the plants they have.
tell us who benefits from the tech industry moving offshore?
To the extent that the tech industry does it and it cuts costs, it's part of the reason you and millions of others can afford to type on your computer right now, actually. And as a small businessman, I will gladly outsource tech work if it helps keep me afloat.
BTW, we're still short on health care workers--some parts of the country are in crisis.
health care workers are essentially quasi-government workers - since a significant part of health care dollars comes from government.
maybe you could identify exactly where private sector people ought to find jobs - the real private sector, not government or health care or some other industry tied to government spending. because those are the workers that comprise the net tax base for the country.
every restaurant and hotel owner in the US is screaming that they need mexican illegals as a source of cheap labor to "reduce costs". as if they have some god given right to low cost labor. what's next, if a small business owner came crying that they needed slavery to keep their business afloat - should we give it to them? because thats the logical extension of this "I deserve unlimited access to lower costs" mantra.
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