The Chinese Don't Owe Me A Job

Fareed Zakaria wrote yesterday about the increasing clashes in US-China relations [1] and concludes it's likely that "both countries might well be playing the same game: feigning public outrage to satisfy domestic audiences." One thing's certain, however, China's so serious about playing to win that, in addition to obvious currency manipulation [2], they've stepped up their internet espionage, malware and blackmail [3] initiatives targeting foreign companies and governments to benefit their domestic industries.

It bugs me to keep saying this, but even though I'm glad the US government isn't being called out as a global hacker menace, I wish they gave as much of a damn about making sure there was an abundance of good jobs for Americans. The Chinese government is at least trying to keep food on the table. I can respect that.

More, it's not the Chinese government's job to see to it that Americans are employed.

So it's all very well and good to look outside the US and see where American jobs have moved to, but every time we do, it should be with the recognition that the reasons they aren't replaced lie closer to home. The failure to provide a supportive business climate where the government handles health care costs and administration, often financed in other nations by a value-added tax [4] that's rebated to exporters, is the fault of a dysfunctional [5], nearly paralyzed [6] Congress and a culture that petulantly refuses to deal with its fear of changing roles for women [7]. The failure to insist that the finance industry serves the real economy [8], instead of leaching off of it, comes directly from a political culture that's more concerned over tax rates on outrageously large incomes [9] than in providing living wage jobs to people who are ready and willing to work.

Many of these problems spring from ideology getting in the way of understanding and, imo, there are three major areas of muddle to address: economic fallacies, longstanding industries and cutting edge industries.

Economic fallacies

Forget all the hoodoo about bond markets and whatnot, economics isn't a real science yet, particularly not the flavor that's politically popular among the Very Serious People of the DC Beltway. Indeed, if there's anything that sort of laissez faire, anti-regulatory, free market cultism can accurately predict, it's the best way to ensure that the poor get poorer and the rich get richer.

You don't have to be an economist to see it, either. I may not understand all the ins and outs of chemical engineering, but when the Haber-Bosch process is used as directed, it creates nitrogen fertilizer and not, say, polystyrene. I don't have to know exactly how it works to be able to see that it does work, that applying the principles of chemistry can produce consistent results, just as advertised.

But when Alan Greenspan told everyone for decades that deregulation, deregulation and more deregulation would create broadly-shared prosperity, we can all see now that it instead created a series of bubble economies that obscured stagnating wages, increased consumer debt, widening wealth inequality and serious financial instability. Following the 2008 financial meltdown, Greenspan admitted his mistake [10] before Congress:

... “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he told the House Committee on Oversight and Government Reform.

... “You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others,” said Representative Henry A. Waxman of California, chairman of the committee. “Do you feel that your ideology pushed you to make decisions that you wish you had not made?”

Mr. Greenspan conceded: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.” ...

A flaw. The Federal Reserve thing might be past and done with, but I suspect that Greenspan will always have a job in understatement.

The discipline of economics, put another way, is several sets of competing strategies for participating in a game that we humans invented to play with each other. These strategies may be more or less well grounded in mathematics, but they're about psychology as much as anything, loathe as some may be to admit it. The question to ask about economic theories isn't if they work, but what they're meant to accomplish and for whom they're meant to accomplish it.

For this reason, that taxes and regulation on business have been pushed by wealthy elites to the status of morally questionable activity ranging from distasteful to sinful, depending on their success with the audience, should always have raised alarm bells. Consider what this blind ideology has cost the US in terms of even one aspect of tax policy, the value-added tax. From "The Plight of American Manufacturing," by Richard McCormack, as published in the book "Manufacturing A Better Future For America":

...Value-added taxes are in place in 139 countries. There is only one industrialized country in the world that does not have a value-added tax: the united States. Foreign governments rebate the tax to companies when they export products, or to tourists when they travel back to their home country. Value-added taxes are being used as an enticement to U.S. manufacturers to shift production offshore.

... When a product made in the United States is exported, the foreign country collects a value-added tax on that product. That money is then used to fund that country's nationalized health care system. U.S. companies are subsidizing foreign health care systems. With socialized health care systems, foreign companies don't have to pay the health care costs of their workers, unlike American companies.

... Germany raised its VAT rate to 19 percent effective January 1, 2007, which means that when a product worth $100 is shipped from the United States to Germany, it sells for $119 in Germany, whereas a $100 product shipped from Germany to the United States is sold for $81. It is virtually impossible for American companies to overcome such a differential. ...

Add to that a dollar valuation policy that overvalues US currency [11], which favors purchasing imports by making them relatively cheaper than domestic goods, and you have yourself a good start on why we're trying to run a national economy on an ever-expanding service sector. Because, you know, if we all walk each other's poodles, do each other's taxes and wait on tables somewhere, the job market will create prosperity. Someday. Maybe for the debt collection industry [12].

When economic ideologies don't work for us, we need to insist that our policy makers try something else. Most of our prevailing economic policies were invented last century by a bunch of dudes in Chicago, not written in letters of fire on a mountainside by the Lord nor painstakingly proven by exhaustive double-blind studies.

Economic theories have no objective right to be implemented and don't let anyone tell you otherwise. Especially if they're making most of the country poor.

Longstanding industries

When production industries dry up and blow away for other shores, common arguments are that either they were obsolete, 'buggy whip' industries in the first place, or that the job declines are simply due to changing business models. Either way, nothing to see, right?

After all, even liberal commentators like Matt Yglesias [13] and Hale Stewart [14] think that it's just about the productivity and automation, respectively.

Richard McCormack from "The Plight of American Manufacturing," again, emphasis mine, explaining that US manufacturing has only captured 10 percent of increased consumer demand over the last 30 years:

... U.S. demand for manufactured goods has increased by 400 percent since 1980, says Revere Copper CEO Brian O'Shaughnessy. But U.S. production of those goods increased by 40 percent. "Without foreign government trade cheating, U.S. production would have been far greater. Revere Copper's exports and domestic sales would have grown very large indeed," he says. Like thousands of other U.S. manufacturers, Revere lost 30 percent of its U.S. customers from 2000 to 2007, due to large companies shutting down or moving their production offshore. Former customers that have closed their U.S. production include Carrier, Oneida, General Electric, Smith Corona, Ethan Allen and Chicago Pneumatic.

America's oldest industry is also on the verge of extinction. The glassware industry is down to one remaining large American producer of glassware: Libbey Glass Inc. of Toledo, Ohio. The reason: "foreign companies are supported by their governments," says Libbey CEO John Meier.

During his 37-year career with Libbey, Meier has seen every single major U.S. competitor either go out of business, end up in Chapter 11 or go up for sale. Corning Consumer Products, called World Kitchen, has gone through Chapter 11; Oneida is in Chapter 11; Anchor Hocking is in Chapter 11; Wheaton Glass has gone through Chapter 7 "shut down and gone," says Meier. Federal Glass is in Chapter 7 "shut down and gone." And Indiana Glass is up for sale.

... The problem facing the industry is simple: unfair trade -- "not the ideology of free trade but the reality of trade," Meier says. "The reality of trade today is far different than that described by the theorists. Comparative advantage may exist for basic commodities, but in today's world where transportation speeds products to marketplaces all over the globe, where capital flows freely to the place where it can gain the highest return, where technology can be applied in virtually any environment, competition is not governed by theories in textbooks, but by profits and national interests."

... The unwillingness of the U.S. government to defend manufacturers from unfair currency manipulation, from foreign value-added tax rebates, from companies that are manufacturing products that would be illegally produced in the United States and selling them for below the cost of raw materials has put millions of American lives into economic turmoil. ...

I reviewed more of McCormack's analysis the other day, regarding the Bush administration's refusal to enforce trade laws [15], but for now, I'd like to talk wedding registry, which is why that passage particularly stood out to me.

Last year, when we were setting up our registry, I added a lot of the sorts of kitchenware that I grew up using and that my mom still has in her kitchen. On the list: Oneida stainless flatware and a nested set of 10 Anchor Hocking glass mixing bowls. Because we have very kind friends and relatives, they were among our gifts and if all goes according to plan, we'll be using them for decades to come. However, the money that was spent on them isn't creating more than retail and distribution chain jobs in the US anymore and that concerns me.

According to the CDC's faststats [16], there were 2,162,000 new marriages in the US in 2008. That's a lot of wedding registries. While some people already have a household set up by the time they get married, I'd be shocked if there weren't at least a million sets of flatware purchased for those couples, and again for the couples married last year, even if established and single households might have delayed such purchases in a downturn.

Don't tell me this is an obsolete market need. People might have been making glassware and eating utensils since before recorded history, but these aren't going out of style any time soon, they're still necessary and useful.

When Americans buy glassware in the future, as they surely will, how much will it stimulate the US economy anymore? It's one thing for some of the consumer purchasing dollar to go overseas, but the US has many times relied on increased consumer spending to hold up the economy. Not only have wages been stagnant, decreasing that purchasing power, when the sorts of things a typical consumer buys were all made overseas, that spending does ever less to stimulate the US economy. (And this scenario isn't just playing out in housewares, but in heavy equipment, apparel, office supplies, lighting, integrated circuits, etc.)

More, a job in a glass factory is probably going to pay better and have better benefits than even much low- and mid-level office work, depending on seniority. It sure pays a lot more than a job as a retail clerk selling glassware, and the typical employee probably gets a lot more respect in a factory than in a US retail establishment. A job in a glass factory doesn't necessarily require a ruinously expensive four year degree, either, so people can earn a living wage [17] without college degrees, though there are of course positions in the industry that do require it.

Because glass, just for the sake of a useful example, has so many applications, a robust manufacturing industry is going to create a whole range of employment opportunities. There are even research opportunities in the glass industry and breakthroughs to be made, like the recent invention in Turkey of a German-held patent for spray-on liquid glass [18]. And this brings us to our next topic ...

Cutting edge industries

When free trade agreements first became all the rage, the American public was told to expect a process of creative destruction. Old industries were going to go away, but new industries would take their place and it would all work out in the end. We've seen the destruction, but the creation, not so much.

Let's take the clean energy and transportation sectors. (Please?)

Clean energy is an emerging market sector on which the Chinese are spending $12.6 million every hour [19]. Last year, China spent $88 billion on expanding rail [20], including high speed commuter rail.

Solar power was invented in the US, but now that it's a fast-growing market, solar panels are increasingly made in China. The US was once so proud of its railways, but we haven't even kept up with electrifying our freight rail and speeding up passenger service [21], let alone getting to the point where we could field a world-class high speed train system. As both these industries grow in response to worldwide increases in demand, Chinese companies will have more experience, more capacity and more readiness to capture market share. When the wave crests, they'll be ready to ride it. Chinese workers will get a sizable share of those jobs and US workers will have to hope to, maybe, get at least a few of them.

While manufacturing of anything but defense industry products has apparently been out of favor in Washington, DC, the same can't be said of the fossil fuel industry, nor, for a long time, the auto industry. The flip side of the US government having neglected some industries to the point of losing them altogether has been the same government protecting some industries so rabidly that new industrial competition is nipped in the bud. This leaves favored industries with corrupting levels of influence [22], simply because there just aren't enough other jobs for their employees to go to.

The same could be said for a number of other high tech industries whose products are very much in demand, and will be for years to come. Though if the jobs are going to come to the United States, it's up to US policies to support that goal [23], because the Chinese don't owe job opportunities to US citizens.