Trade

Manufacturing On Planet Economus

Dave Johnson — Tue, 07 Feb 2012 15:26:40 -0500

Economist Christina Romer had an op-ed in the NY Times this weekend, Do Manufacturers Need Special Treatment? The question that keep coming back to me is why did she feel the need to write an op-ed to diss manufacturing? Is it just an economist thing? Or is she, like so many economists, from another planet?

In her op-ed Romer claims those of us who argue for a national manufacturing policy do so out of “the feeling that it’s better to produce “real things” than services.” But, she says,

American consumers value health care and haircuts as much as washing machines and hair dryers. And our earnings from exporting architectural plans for a building in Shanghai are as real as those from exporting cars to Canada.

Here is the difference: We can't just keep servicing each other. This "service economy" thing hasn't worked out so well here on Earth, and now we have a huge trade deficit. It is "better to produce real things" because that is what you sell to others to get the money to pay each other for haircuts (and scissors).

Once You've Got It It's Hard To Lose It, Once You Lose It It's Hard To Get It Back

Manufacturing brings so much along with it that entire economies have been, are and will be supported. China isn't making its living by cutting each others' hair. Neither is Germany, or other countries that have realized the importance of manufacturing and manufacturing policy to an economy.

Manufacturing brings with it all the businesses in a supply chain, it brings the research and innovation that manufacturing requires, and it brings a lasting real infrastructure that requires enormous investment to duplicate elsewhere before competition is enabled. Today we have a tremendous current account imbalance that resulted from the terrible trade deficits suffered since we were invaded by this crowd from planet Economus, who told us we don't need manufacturing - that we should transform ourselves into a "service economy." And it will require enormous investment to restore the ecosystem that we allowed to escape to other countries in that period.

Once you've got it, it's hard to lose it, and once you lose it, it's hard to get it back. Not so much with services.

Romer's Three Straw Arguments

Romer sets up three arguments made of straw for helping manufacturing, only to knock them down:

One: Market Failure. Romer says "government intervention" is only justified when you can demonstrate "market failure." In essence she says markets must make our decisions, not We, the People. “For example, when competition in a market is limited, antitrust laws that prevent monopoly can be helpful.”

Romer writes that another “market failure” comes when it can be shown that there is a benefit to having clusters of businesses. When benefits leak beyond where a company is putting their money then tax breaks and other government help may be due.

Romer knocks down this justification for government “intervention” with two arguments. She says, “large clustering effects have been hard to find.”

Perhaps cluster effects don’t have benefits on planet Economus, where Romer apparently resides, but on earth all you have to do is look from the development of the auto industry in Detroit to the development of the semiconductor industry in Silicon Valley to understand that yes, clustering effects matter.

Romer also says if clustering does brings benefits why single out manufacturing for government benefits when other sectors also benefit from clustering? Well, of course we shouldn't just help our manufacturing if it can be shown that government involvement boosts the businesses of We, the People in other sectors.

Romer also says there is market failure if a learning period means that future companies benefit from work done by early companies. Romer says, “ a study of the semiconductor industry found that although learning by doing was substantial, most of the rewards went to companies doing the early investing.”

The Silicon Valley Romer talks about is located on that planet Economus. The Terran Silicon Valley I live in has seen many, many startups fail, only to see later companies take up their ideas and succeed.

Romer concedes that we might need manufacturing to make things with which to defend the country, justifying government intervention in markets. The argument that we need a strong manufacturing base here in case of war must be taken seriously. But she says it still doesn’t follow that all manufacturing deserves special treatment. Which industries are truly essential in a war effort, she asks? I guess she asks this is because on planet Economus service industries are essential to a war effort. On Economus you apparently win wars by cutting each others’ hair.

Two: Romer’s second case-of-straw for “government intervention” is to create jobs and reduce unemployment. Romer says, “Unfortunately, those effects are probably small.”

In the 2000-2009 "service economy" decade we lost 5 million manufacturing jobs, more than 50,000 factories, and the hope to capture several industries of the future. Those are not small effects. And the effects on the surrounding communities are severe.

Romer rightly says that the current problem with the economy is lack of demand. She prescribes tax cuts for households, help for state and local governments and investment in infrastructure. (The old "taxes take money out of the economy" argument?)

But then she says that a tax break to encourage insourcing of jobs in manufacturing won’t create demand so we shouldn't do it. It might make our goods cheaper to export, but challenging China’s currency manipulation would do more, so we shouldn’t do this. This is the old "don't do anything if it doesn't fix everything." We need to do all of these things, and more.

Three: Romer’s third straw argument is income redistribution. Because manufacturing jobs “are seen as” better-paying “for less educated workers” then manufacturing is a way to distribute more income to people with less education. But no, she says, “Increased international competition has forced American manufacturers to reduce costs. As a result, the pay premium for low-skilled workers in manufacturing is smaller than it once was.”

Romer says government should help people get a better education instead of helping create jobs for people who do not go to college. Perhaps on planet Economus all the IQs are above average, but on Earth the average IQ is 100, and not everyone can or should get a college degree. If we send more people to college without bringing back manufacturing, we'll just have more unemployed people with college degrees than we do now.

Romer also says, "If increasing income equality is the goal, it might be wiser to put money into infrastructure than to subsidize manufacturing. Construction also pays good wages, but with lower educational requirements. And America’s infrastructure needs are enormous." Well, yes. But again this is the old "don't do anything if it doesn't fix everything." Do those things. And revive American manufacturing.

Why is "the pay premium for low-skilled workers in manufacturing ... smaller than it once was"? Here is why: Before we became a plutocracy we were a democracy. When We, the People had a say we demanded good wages, benefits, good working conditions, a clean environment and dignity on the job. But workers in China have no say. They are stuffed 6 to a room in dormitories, rousted in the middle of the night to work extra shifts …

"Free trade" agreements made democracy a competitive disadvantage. To people from planet Economus, these conditions in places like China are just “lower costs” that the rest of us need to learn to compete with.

Are All The Other Countries Wrong?

The countries that are successful in today's economy have national industrial/economic policies. We do not. They work to capture parts or all of key strategic industries, and line up the infrastructure, finance, education, supply chains, power grid, tax policies and everything else needed to compete in the world economy. We do not.

We send our companies out against these national systems, and even our largest companies cannot compete with national systems. So we lose.

Are China, Germany and so many other countries just wrong, putting so much into these efforts to capture parts or all of strategic industries? Or are they being smart? Look at who has a trade surplus and who has a trade deficit, and see if you can guess the answer.

The Fix

1) Romer says we should not have special treatment to help manufacturing. Well, let’s start by removing the special treatments that are hurting manufacturing. After that we can begin to talk about "special treatment" to help manufacturing. Out tax policies encourage outsourcing and make it economically beneficial to close a factory rather than maintain it.

2) Countries like China offer subsidies to strategic companies and industries. They manipulate their currency to keep their prices lower in world markets. Let’s enforce trade rules against that, and if we can’t then let’s get out of these "free trade" agreements that are killing us and put tariffs on their goods so they are not unfairly competing with goods made here. And start matching subsidies on exports so they compete in world markets.

3) Other countries have national industrial policies, lining up everything needed to capture part of all of strategic industries. We don't so we send our companies out alone against countries. We have to change this, or ultimately our companies have to lose.

4) Planet Economus is a place far from Earth. On planet Economus they apparently have free markets, and free trade. But on Earth free markets and free trade never existed anywhere at any time, and never worked when they were tried. So on Earth we have to have policies that reflect what happens on Earth, not on planet Economus.

This Time Isn't Different

Romer concludes,

AS an economic historian, I appreciate what manufacturing has contributed to the United States. It was the engine of growth that allowed us to win two world wars and provided millions of families with a ticket to the middle class.

Right, and it still is. This time it isn't different.

China Cheating Costs 400K Auto Parts Jobs

Dave Johnson — Thu, 02 Feb 2012 14:21:26 -0500

This week three new reports described even more continuing damage to our economy caused by China's trade cheating -- and our own lack of response. Even as the auto industry recovers and auto-assembly jobs are returning, the auto-parts industry and jobs are not.

The reports, one from the Stewart and Stewart law firm along with two reports from the Economic Policy Institute (EPI) make the case that China is cheating, that it is costing lots of US jobs, and detail the national numbers and individual state costs.

The reports describe Chinese trade violations and calculate the damage done to our economy:

Growing Threats to the U.S. Auto-Parts Industry from Heavily Subsidized Chinese Tires and Parts, from EPI. The report concludes that “every one of these [1.6 million U.S.] auto-parts jobs is individually at-risk from this unfair trade competition.” With 75% of auto-industry jobs in the auto-parts sector, this means a lot of jobs are at risk even as our auto industry recovers.
Putting the Pedal to the Metal: Subsidies to China’s Auto-Parts Industry from 2001 to 2011, conducted for EPI by Usha C.V. Haley, says there are $27.5 billion of Chinese government subsidies to their auto-parts industry with an additional $10.9 billion in subsidies for industrial restructuring and technological development of the industry coming.
China’s Support Program for Automobiles and Auto Parts Under the 12th Five Year Plan, by the law firm Stewart and Stewart says China's subsidies to their auto-parts companies are in violation of China’s WTO commitments, but will continue unless we enforce trade rules.

I joined a call discussing these reports, with Leo Gerard of the United Steelworkers, Robert Scott of EPI, Scott Paul of the Alliance for American Manufacturing and CAF's Robert Borosage. The call detailed the many ways that China helps companies, even things like a tax on rare-earth mineral exports. So Chinese companies don't pay the tax, this is one more way their costs are lower, while US companies, already facing currency-rate manipulation, lose the competitive battle.

The Chinese government subsidizes energy costs, land, financing, labor, labor training and many other things, while our government does not. There are so many ways that China incorporates a national industrial policy to help capture vital and strategic industries, while our government does not. Our government barely begins to even enforce trade rules, which enables and encourages competitors to cheat while forcing out honest actors. Some of this is smart policy on China's part coupled with really not-smart policy on our part. We are blocked by ideologues from having a good, coordinated national industrial policy. Some of that is helped along by the beneficiaries of this lack of policy. With all the causes, the result is that Americans are losing jobs, factories, companies industries and our economy.

Corporate media coverage of these reports is telling, with the LA times describing them as "left-leaning" and the Detroit News describing them as "liberal-leaning."

Meanwhile the China Daily warns us not to fightback, calling enforcement of trade violations "protectionism." From Protectionism won't help,

Trade protectionism against China is on the rise in the United States. The Obama administration has brought trade cases against China at nearly twice the rate of the previous administration, and it is also creating a trade enforcement unit to investigate the "unfair trade practices" of China and other countries.

Nevertheless, are these protectionist measures the right remedy for solving the US' grim unemployment problem?

Well, the answer to the question is yes.

The punch line comes in what can only be described as a "Freudian slip" at the end of the China Daily piece:

Resorting to protectionist measures hinders international trade, outsourcing and investment, and ultimately harms all.

Why yes, enforcing trade laws just might hinder outsourcing. Yes, that's the point.

Take Action

Click here to Tell Congress and the White House to Stop China's Illegal and Unfair Trade Practices

Auto Parts Manufacturers Are Being Undercut

Through a range of unfair, illegal, and predatory trade practices, China is seeking to corner yet another industry and drive American workers out of their jobs. This time, the target is the auto parts manufacturing sector, and the pattern is the same as we have seen in sector after sector.

Democracy v. Plutocracy, Unions vs. Servitude

Dave Johnson — Thu, 26 Jan 2012 21:25:38 -0500

Servitude: "a condition in which one lacks liberty especially to determine one's course of action or way of life"

Democracy: "a government in which the supreme power is vested in the people and exercised by them directly or indirectly through a system of representation usually involving periodically held free elections"

Plutocracy: government by the wealthy

Labor union: an organization of workers formed for the purpose of advancing its members' interests in respect to wages, benefits, and working conditions

You may have seen the recent flurry of stories about how high-tech products are made in China. The stories focus on Apple, but it isn't just Apple. These stories of exploited Chinese workers are also the story of how and why we -- 99% of us, anyway -- are all feeling such a squeeze here, because we are suffering the disappearance of our middle class. Our choice is democracy or servitude.

Working In China

A collection of excerpts from the Charles Duhigg and David Barboza story, Human Costs Are Built Into an iPad and the Charles Duhigg and Keith Bradsher story, How the U.S. Lost Out on iPhone Work both from the NY Times:

Rousted from dorms at midnight, told to work:

Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“Work hard on the job today or work hard to find a job tomorrow.”

Banners on the walls warned the 120,000 employees: “Work hard on the job today or work hard to find a job tomorrow.”

(How close is that to the very definition of servitude?)

Long shifts, legs swollen from standing:

Shifts ran 24 hours a day, and the factory was always bright. At any moment, there were thousands of workers standing on assembly lines or sitting in backless chairs, crouching next to large machinery, or jogging between loading bays. Some workers’ legs swelled so much they waddled. “It’s hard to stand all day,” said Zhao Sheng, a plant worker.

Write confessions if late:

Mr. Lai was soon spending 12 hours a day, six days a week inside the factory, according to his paychecks. Employees who arrived late were sometimes required to write confession letters and copy quotations. There were “continuous shifts,” when workers were told to work two stretches in a row, according to interviews.

Injuries from speed-up toxics:

Investigations by news organizations revealed that over a hundred employees had been injured by n-hexane, a toxic chemical that can cause nerve damage and paralysis.

Employees said they had been ordered to use n-hexane to clean iPhone screens because it evaporated almost three times as fast as rubbing alcohol. Faster evaporation meant workers could clean more screens each minute.

American companies forcing Asian suppliers to squeeze workers:

“You can set all the rules you want, but they’re meaningless if you don’t give suppliers enough profit to treat workers well,” said one former Apple executive with firsthand knowledge of the supplier responsibility group. “If you squeeze margins, you’re forcing them to cut safety.”

The Results For The 1%

A series of recent newspaper headlines tells the story of how China's working conditions benefit the 1% here.

NYT: Apple's Profit Soars‎

CBS Moneywatch: Apple shares close at record high

SF Chronicle: Apple CEO's Stock Awards Lift Compensation to $378 Million

ZDNet: Apple: made in China, untaxed profits kept offshore. We don't even get to tax the profits from moving our jobs to China, to use for schools, roads, police, etc.

The Results For The 99%

Headlines like these show how things are going better and better for the 1%. But what happened to our middle-class prosperity? We allowed companies to move jobs and factories across the borders of democracy to places where workers are exploited, calling that "trade." This enabled the breaking of unions and the weakening of our democracy.

The threat is in the air: "Shut up and take the wage cuts or we will move your job to China." How is that threat used on us? Here is an example: We have heard the stories of Mitt Romney's company Bain Capital, and how it "earned" its millions. According to the Christian Science Monitor, this is the story of what happened when a Bain-owned company "came to town":

The new owner, American Pad & Paper, owned in turn by Bain Capital, told all 258 union workers they were fired, in a cost-cutting move. Security guards hustled them out of the building. They would be able to reapply for their jobs, at lesser wages and benefits, but not all would be rehired.

Workers in countries like China where people have no say have low wages, terrible working conditions, long hours, and are told to shut up and take it or they won[t have any job at all. They are given no choice.

Increasingly workers here have their wages, hours, benefits, dignity cut and are told to shut up and take it or their jobs will be moved to China. Because we are pitted against exploited workers in countries where people have no say, we have no choice.

The unions are weakened, the government doesn't enforce or weakly enforces labor laws and regulations, age, gender or race discrimination laws, worker safety laws, so workers are placed in a terrible squeeze. Workers who try to organize unions are isolated, moved, smeared, fired, humiliated, whatever it takes.

This quote by Steve Jobs is from How the U.S. Lost Out on iPhone Work,

Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.

Why can’t that work come home? Mr. Obama asked.

Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said, according to another dinner guest.

Democracy Brought Us Prosperity

We used to be a democracy, where everyone used to have a say in things. Because we had a say we built up a country with good schools, good infrastructure, good courts, and we made rules that said workers had to be safe, get a minimum wage, overtime, weekends… we protected the environment, we set up Social Security. We took care of each other. This made us prosperous. A share of the prosperity for the 99% was the fruit of democracy.

China, on the other hand, is not a democracy, and workers in China don't really have a say. So they don't make much money, they don't have good working conditions, the environment isn't protected, etc.

We Used To Protect Democracy

We used to protect our democracy. We used to put a tariff on goods coming in if they were made by people who didn’t have the ability to speak up and better their condition. We’d let the goods in but we would use a tariff to strengthen our country, our infrastructure, our schools – our democracy. This brought us prosperity.

For some reason, we started letting our companies move our factories over there, forcing our workers to compete with workers who have no say. We got tricked, by people who call that "trade," and said it would be good for us. (Like cutting taxes for the wealthy "job creators" is good for us.)

We opened the borders and let the big companies move the jobs, factories and industries over the border of our democracy, to places where workers don't have a say, so they are exploited. And the result was the big corporations were able to come back and cut our pay, and get rid of our pensions, and tell us, "take it, shut up, or we will move your job, too." We made the wages and working and conditions and environmental protections prosperity that democracy brings into a cost. We turned ourselves into a cost. We made democracy a competitive disadvantage.

Plutocrats Say Shed Benefits Of Democracy

Plutocrats say we need to shed the benefits of democracy and become more like China if we want to compete. They say get rid of regulations, employee protections, environmental protections, good wages, benefits like pensions and time off, etc... They say that We, the People (government) "get in the way of doing business." They say the taxes that pay for good infrastructure and schools and police and courts and services like Social Security and care for the disabled and health care for children "take money out of the economy" but they mean these take some of the money that they have been taking from the economy.

Democracy Is The Best Economics

Look at the primary target of the corporate/conservatives: unions. That should tell you something. This is a power confrontation. This is the power of the 1% overcoming the power of the 99%.

Democracy is the power of the 99% to make the decisions, and to build structures that protect us from exploitation by the wealthy and powerful. This confrontation is the story of the origin of our country -- how We, the People confronted the power and corruption of the British aristocracy, overcame that power, and built a country of, by and for the people.

Democracy and the taxes it enabled us to ask from the wealthiest is what enabled us to build the infrastructure and schools and everything that enabled our prosperity. The regulations of democracy are what enable our smaller businesses to compete with the giants. The shared prosperity -- redistribution of wealth -- is what enabled the middle class to grow, and turned us into the most prosperous country and largest market in the world.

Unions

Unions are about building up the power of groups of people, to confront and overcome the advantages of wealth and the power wealth brings to a few. When a union is strong enough to be able to confront the power of big corporations the result is that the 99% get a share of the pie. When unions are strong we all get better wages and better working conditions and a say in how we are treated, whether we are in unions or not. The benefits flow to the rest of the economy.

It would be nice if our system worked well enough that we didn't need to organize unions on top of the structure of laws and regulations, but it is just the fact of life that the wealthy and powerful and their corporations have throughout our history been able to exert tremendous influence over legislative bodies, again and again. So to fight that working people organize and build these organized unions of people, and leverage that power of the group to demand wages and benefits and weekends and a share of the prosperity. The story of the power confrontation between unions of working people (99%) and the large corporations (1%) is the story of how we built a middle class that brought us the prosperity we enjoyed.

It is not just a coincidence that the weakening of the unions coincides with the decline of the middle class. It is not just a coincidence that the current rise of the plutocrats brings in a swarm of anti-union legislation. It is not just a coincidence that the times when our democracy is strongest we all do so much better. And now, when our demcoracy has been weakened by the money and power of the 1% and their corporations, the rest of us are so much worse off.

Not US v. China

This is not about US workers and markets vs China. Working people in all countries are at risk when their countries trade with countries where workers are exploited. China's huge trade imbalance is threatening the world's economy. The loss of manufacturing to countries that exploit workers is threatening workers in many countries.

The US market is still large, and the US can still demand that imported goods be made according to better standards for workers. The rest of the world can also demand that China's workers be brought up to international standards. And we can certainly hold companies like Apple accountable, and demand that they only buy from suppliers that treat and pay workers according to international standards, because allowing companies to cheat, exploit workers and commit fraud drives the good companies out of business.

This is not about taking jobs back from Chinese workers! This is about demanding they be paid fairly and given a say in their workplaces! This is about not exploiting people there or here!

Trade can be an upward spiral, rather than a lever for exploitation of the 99% by the 1%. If Chinese workers are given a say and paid fairly then they can buy things we make and we can keep buying things they make.

Unions = Democracy = Middle Class = Shared Prosperity

Jon Stewart explains:

The Daily Show with Jon Stewart
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President Puts American Manufacturing Front And Center In State Of The Union

Dave Johnson — Wed, 25 Jan 2012 14:59:42 -0500

President Obama put American manufacturing literally at the front and center of his State of the Union speech. American manufacturing was at the front of the speech and at the center of a "blueprint" for bringing back jobs and strengthening our economy. By placing manufacturing front and center he has taken this conversation further than any President before him.

There is good reason to cheer, but also good reason to ask for even more. He outlined steps to stop the outsourcing and start the insourcing, but there is not yet a comprehensive, overall government strategy to fix trade and capture the industries of the future.

The Speech

Right up front the President talked about building "an America that attracts a new generation of high-tech manufacturing and high-paying jobs." Then,

"Tonight, I want to speak about how we move forward and lay out a blueprint for an economy that's built to last, an economy built on American manufacturing, American energy, skills for American workers, and a renewal of American values.

This blueprint begins with American manufacturing."

Bob Borosage, in The Obama State of the Union: A Progressive View,

On the economy, the speech led with more discussion of manufacturing than anyone has heard in years. The president wanted and deserved credit for saving Detroit – a key to his campaign in the Midwest – and wanted to highlight the uptick in manufacturing jobs and “insourcing,” the movement of some jobs back to the US.

Again, his agenda focused on mostly symbolic measures of populist appeal. In addition to the tax on multinationals, he promised a new trade enforcement effort to challenge China and others who trample global trade rules. With Romney promising to cite China for currency violation on day one if elected, the administration seems likely to finally challenge China, at least symbolically.

Steps, But Not An Overall Picture

The President outlined steps to stop the outsourcing and start the insourcing. There are things that the Congress can do right now. These include but are not limited to,

Eliminate existing tax deductions for outsourcing
Big multinational corporations should pay a minimum tax
Use some of the money this brings in to cover the expenses of bringing jobs home
Pass tax cuts for manufacturing here
A trade enforcement unit to look at bringing cases against countries like China that cheat, use piracy, give subsidies
Steps to train skilled workers, with a national commitment to train 2 million with skills that will lead to a job
Do something about the maze of confusing training programs
Turn our unemployment system into a reemployment system
Instead of bashing teachers and laying them off, give schools resources to keep good teachers
Reduce the cost of college. Stop student loan interest rates from doubling in July. Condition federal assistance on lowering tuition.

This "blueprint" has a number of good, solid steps that will help stop the outsourcing and start the insourcing. But it is not a comprehensive national industrial/economic strategy that addresses the overall picture of all of the components of a national manufacturing ecosystem. To begin to address this, the President has established a cabinet-level Office of Manufacturing Policy to coordinate efforts of various government agencies.

Coordinating the efforts of various government agencies to help American exports is important, but this does not address the development of a national plan, like other countries have. We need this, too. A national plan would seek to cover all the elements of a healthy "industrial commons" -- meaning all of the components of a healthy manufacturing ecosystem. These include government efforts to make sure the components are ready, funded and functioning:

The necessary educational components to provide people ready to do all of the jobs an industry requires;
The financing to build factories and obtain inventory;
The modern infrastructure of roads, electrical power, internet, posts and airports, to support the companies;
Trade and tax policies to help these companies locate and export;
R&D facilities and researchers for innovation and design;
Local suppliers to support the companies;
Legal structures and fully-funded and staffed court systems to support the industry;
The entire "chain of experience" located in an area, often around a "cluster" of businesses, required for an industry to develop and thrive.

Countries like China are engaged in national efforts to get all of these components lined up to capture industries like the new green energy revolution that is taking place. China is working to capture solar and wind energy manufacturing. They are working to capture high-speed rail manufacturing. The news about the reasons Apple and other high-tech manufactures have had to locate in China show how hard China has worked to capture that industry -- and not without quite a bit of cheating that we are not stopping.

Our competitors are engaging in national efforts to line up all of these components to capture other new industries as they emerge. We are not.

Ideology Holds Us Back From Competing

This list of components of a national industrial/economic policy describes the kind of national effort that competitors like China are engaged in, and is the reason they are bringing in such a share of new industrial growth. To address this we have to see ourselves as a country, as China does, mutually supporting each other, to be able to embark on an undertaking like this. We have to abandon the "each of us on our own" and selfish, "in it only for ourselves" mentality that has set us apart, preventing national government efforts like other countries engage in.

Some of us hold on to an ideological fantasy that government is only in the way, but other countries do not. So the result is that we keep sending our companies out on their own against national systems. Even our largest companies cannot compete on their own against countries with national efforts to put all of these components in place. It takes a unified government effort.

We have to move to a "we are in this together" understanding of ourselves and our country if we want to bring back the shared prosperity we used to have, and can have again.

Update - White House fact sheet: FACT SHEET: President Obama’s Blueprint to Support U.S. Manufacturing Jobs, Discourage Outsourcing, and Encourage Insourcing

Did The President's Jobs Council Go All Corporate?

Dave Johnson — Wed, 18 Jan 2012 15:10:19 -0500

President Obama's Council on Jobs and Competitiveness ("Jobs Council") issued a report calling for fewer regulations and lower corporate tax rates. This doesn't have to be a bad idea.

The Report

The Jobs Council report, Road Map to Renewal makes a number of recommendations. Here are the main points - please click through for the details:

Prepare the American Workforce to Compete in the Global Economy
Foster a Climate that Lets Innovation Thrive
Adopt an “All-In” Strategy on Energy
Revitalize the American Manufacturing Sector
Enhance American Competitiveness through Smart Regulatory Reforms
Reform the Outdated Tax System to Enhance American Competitiveness

Council Heavily Weighted Toward 1%

The Jobs Council is heavily, heavily, heavily weighted to tilt toward the 1%. The list of members reads "Chair and CEO" with a smattering of ultra-wealthy finance types thrown in, and then a couple of token union leaders.

The Objections

United Food and Commercial Workers president Joseph Hansen abstained from voting. AFL-CIO President Richard Trumka released a 1635-word dissent. In the dissent Trumka writes, (emphasis added)

I agree with the overall spirit and a number of the specific recommendations in today’s report ... I absolutely agree ... that the United States is falling behind our international counterparts in investing in modern infrastructure, education, and skills; supporting a vibrant manufacturing sector; developing cost-effective and globally responsible energy practices; and supporting innovation. ...

Unfortunately, I believe the report downplays the need for a proactive role for the U.S. government in many of these areas; fails to address the significant additional revenues needed to address the challenges identified on an appropriate scale; and in many cases erroneously identifies the root causes of the underlying structural problems.

... the report addresses regulatory issues as if we were not in the midst of a prolonged economic crisis whose proximate causes clearly included inadequate regulation of business, and in particular financial markets and institutions.

With respect to corporate tax reform, I believe that corporations as a group pay too low a share of taxes to support the kind of infrastructure investment and education/skills upgrades that are so urgently needed at this time... The report places way too much emphasis on statutory tax rates, mentioning only as an aside that the effective rates paid by corporations are much lower, and that overall corporate tax revenues as a percent of GDP are the fourth lowest in the OECD.

Yes, We Can Cut Corporate Taxes ... If

Actually, we can cut corporate taxes, increasing our international competitiveness, while We, the People still fund our democracy and get paid back for our investment that enabled the prosperity of the corporations. Here's how: Cut corporate taxes, but raise taxes on the 1%er owners of the corporations. Stop the nonsense of lower capital gains tax rates, and restore pre-Reagan top tax rates. Also, require corporations to either use their cash or pay it out to shareholders instead of just sitting on it as many do now.

Capital gains are taxes at a lower rate because most of the income of the 1% is from capital gains, and most of the income of the 1% is from capital gains because the tax rate is lower. The "incentive to invest" should be a good investment, period.

What does cutting corporate tax rates accomplish? First, by cutting corporate tax rates the right ways our companies could become more competitive with companies in other countries. This can be an incentive to locate companies here. But we don't have to just sacrifice this revenue by any means. Instead we can tax it when it becomes personal income. But cutting corporate tax rates without increasing personal income tax rates to make up for it -- which happens to be the DC elite consensus as voiced by Simpson-Bowles -- is complete folly, nothing more than another scam by the 1% to rob We, the People. It is essential that a cut in corporate tax rates happen at the same time as taxes on the resulting personal income are increased, along with requirements that corporate money is either used inside the company or paid out to shareholders.

Look at this chart, which tells you everything you need to know about the who what when where and why of corporations. Corporate wealth is also personal wealth. When you hear about corporations doing well, think about this chart:

Yes, the top 1% also own 50.9% of all stocks, bonds, and mutual fund assets. The top 10% own 90.3%. And it's most likely only gotten worse since these figures were gathered.

Cut The Right Regulations

When the elite DC consensus calls for cutting regulations, they mean regulations that hamper the 1%'s ability to fleece us even more. But there are regulations that actually do impede competitiveness.

Here is what usually happens in DC. After Congress passes laws the regulatory bodies translate the laws into a regulatory framework. This is where the giant companies and their lobbyists get to work. The work they do is influencing these agencies to write regulations that help them, the 1%er corporations that can afford to swarm the agencies with lobbyists -- and that obstruct their competition. So we end up with a situation where small businesses and startups don't have a chance making it through the regulatory maze. They either have to hire specialized, $1000-an-hour DC law firms to help them out, or give up. This is by 1%er design, not because of "big government."

So yes, there are regulatory impediments to competition, but I don't think this form of "cutting regulations" means what the 1%ers on the Jobs Council and the big corporate-elites think it means.

Education

On education, the Jobs Council recommends,

In order to stay competitive in a global age, we must invest in our future by ensuring Americans have the right education and skills to realize their full potential and drive our nation’s economic success. ... These measures will create a purposeful educational system that produces work-ready graduates, satisfied employers with access to a talented labor pool, and a vibrant economy poised for growth and success.

Trumka writes,

With respect to the education section of the report, I believe that the Jobs Council’s education recommendations begin and end in the wrong place: focusing on providing businesses with an endless supply of workers -- as opposed to supporting, improving and sustaining a strong public education system.

So the report calls on government to reconfigure our education system to provide companies with trained worker-bees, which means companies don't have to cough up the dough themselves to train their own workers. The report actually goes even further, basically calling for government to replace think-for-yourself education with do-what-we-say job training. There's a difference. And they ask for this after already asking for tax cuts, too. Sheesh.

The Rest

On energy the 1%ers of course mean "drill, baby, drill." But the council is correct, we do need to go "all-in" on energy, with massive Green Energy investment, freeing us from the damage Big Oil and King Coal do to our environment, our economy, our politics and our democracy.

On manufacturing the council notes that since 1980 manufacturing has slipped from 20% to only 9% of total employment,. The report calls for adding "three to four percentage points of global value added market share—an ambitious but achievable goal." They say we should :take share from our global competitors." There are wonky but great suggestions like "cluster development" and important ideas like going after in promising new manufacturing sectors. The President has formed an Office of Manufacturing Policy that is taking up many of the kinds of recommendations in this report.

In fact, we also need to rewrite our trade agreements so they provide a win-win for the working people here and across our borders, and incentives to manufacture here rather than move jobs, factories, companies and industries out of the country.

And So In Conclusion

Trumka sums things up nicely at the end of his dissent:

Perhaps most profoundly, the report does not ask the critical question: why is our country suffering a manufacturing crisis, complete with massive job loss and a structural trade deficit, when countries with higher overall taxes, higher wages, and more robust health, safety and environmental regulations are enjoying trade surpluses?

The answer lies in the view that we share with so many of our fellow Americans: that our country has become dominated by the interests of the wealthiest 1% at the expense of the remaining 99%. It turns out that a country run in the interests of the wealthiest 1% systematically underinvests in public goods;systematically silences, disempowers, and underinvests in its workers; and in the end is less competitive and creates fewer jobs than a country that focuses on the interests of the 99%.

Echo and amplify what Trumka said: Perhaps most profoundly, the report does not ask the critical question: why is our country suffering a manufacturing crisis, complete with massive job loss and a structural trade deficit, when countries with higher overall taxes, higher wages, and more robust health, safety and environmental regulations are enjoying trade surpluses?

China Currency Manipulation - From "Enough Is Enough" to "Not Enough To Certify"

Dave Johnson — Tue, 27 Dec 2011 18:17:51 -0500

In November President Obama said, "enough is enough" to China's currency manipulations. Today the Treasury Department said it hasn't seen enough to call China a currency manipulator. This is happening because certain powerful interests are benefiting tremendously and using their wealth and power to keep things from changing.

China's Currency Manipulation

China manipulates its currency to keep it "undervalued." This means that things made there cost less in world markets than things made in other countries. The result is that manufacturing moves there, bringing them entire industries, supply chains, and the "industrial commons" of expertise, suppliers and culture that brings with it new businesses and industries. Many economists say that China's currency is undervalued by 25 to 40% meaning products made there have a 25-40% pricing advantage before any other advantages, subsidies, manipulations, etc. are considered. The currency it does not rise to market levels because China takes steps like preventing open trading and buying other currencies -- most of us wold call this manipulation -- to keep this from happening.

Instead of competing fairly China uses this manipulation and others, throwing world trade completely out of balance. Countries "make their living" by producing things and selling them to the rest of the world. This imbalance is costing our country jobs, factories, industries and trillions of dollars but we can't seem to get our government to do anything about it.

"Enough Is Enough"

In a November 14 press conference at the Asia Pacific Economic Cooperation (Apec) summit in Hawaii, President Obama acknowledged the simple reality that China is not allowing its currency to rise to market levels and that this is distorting global trade. He said “enough’s enough.”

“Changes are difficult for them politically, I get it…But the United States and other countries, I think understandably, feel that enough’s enough.”

And in regards to to the glacial pace at which China has been raising the value of the yuan, the president pointed out that “We recognize they may not be able to do it overnight…but they can do it much more quickly than they’ve done it so far.”

But Not Enough

The US Treasury Department today released its semi-annual Report to Congress on International Economic and Exchange Rate Policies. From the report's Key Findings:

"This Report highlights the need for greater exchange rate flexibility in these economies and most notably in China.

Over the past decade, China has resisted very strong market pressures for RMB appreciation. China’s real effective exchange rate has exhibited persistent and substantial undervaluation, although the estimated range of misalignment has narrowed over the course of the past 18 months."

This is the sixth time the Obama administration has refused to label China a currency manipulator and begin taking steps to remedy this problem that is distorting world markets and taking our jobs, factories, industries and money.

Currency Legislation

In October the Senate passed a bipartisan bill -- on a vote of 65 to 35 -- a bill requiring the administration to label China a currency manipulator and begin the necessary steps to remedy the problem. The House Republican leadership has refused to allow this to come up for a vote - because it will pass.

House Speaker John Boehner has made it clear he wants nothing to do with the legislation that has already raised heckles in Beijing.

And for now he seems to be in control despite loud protests including from within his own party.

Boehner, the most powerful Republican in Congress, denounced the bill again on Wednesday, a day after it passed the Senate, saying it posed a "very severe risk" of starting a trade war between the world's two biggest economies.

Even though many Republican members of the House say they support the bill, none of them will sign a discharge petition to force Speaker Boehner to allow a vote. Wall Street opposes addressing the currency imbalances, and has made it clear through their front-group Club For Growth that Wall Street will oppose House members who help bring this up for a vote. And right now Wall Street has more influence in DC's ongoing influence scheme than those who want to manufacture in the US, thereby bringing jobs, factories, industries, innovation and money back to the US.

Bill Clinton's Book -- The Ideas On Trade Agreements

Dave Johnson — Fri, 02 Dec 2011 14:20:55 -0500

I've been taking a look at Former President Bill Clinton’s new book, Back to Work: Why We Need Smart Government for a Strong Economy. Part of the book discusses trade so it is interesting to see what he has to say now that we are living with the results of NAFTA, China's entry into the WTO and other trade agreements. Not nearly enough, unfortunately.

Clinton's book contains a number of ideas for creating jobs and improving the economy. Part I looks at where we are today as a country with our economic problems. He looks at the conservative anti-government movement, launches a defense of government and talks about the country’s debt and where it came from. Finally he compares this to how things are doing in other countries.

In Part II he details several policy ideas for reviving the economy, paying off the debt and creating jobs.

Trade

Idea number 27 is pass new trade agreements. Here is what he writes, in his own words:

27. Pass the pending trade agreements with South Korea, Colombia, and Panama. We don’t have a trade deficit in goods and services with the countries with which we have trade agreements. That’s because the negotiations are tough and thorough, designed to meet both sides’ needs, and supported by enforcement mechanisms. Our trade deficit is largely with the countries we buy oil from and the countries we borrow lots of money from, China and Japan.

He follows that up with idea 28, Enforce trade laws:

28. Enforce trade laws. We lost manufacturing jobs in every one of the eight years after I left office. One of the reasons is that enforcement of our trade laws dropped sharply. Contrary to popular belief, the World Trade Organization and our trade agreements do not require unilateral disarmament. They’re designed to increase the volume of two-way trade on terms that are mutually beneficial. My administration negotiated three hundred trade agreements, but we enforced them, too. Enforcement dropped so much in the last decade because we borrowed more and more money from the countries that had big trade surpluses with us, especially China and Japan, to pay for government spending. Since they are now our bankers, it’s hard to be tough on their unfair trading practices. This happened because we abandoned the path of balanced budgets ten years ago, choosing instead large tax cuts especially for higher-income people like me, along with two wars and the senior citizens’ drug benefit. In the history of our republic, it’s the first time we ever cut taxes while going to war.

Clinton says trade agreements are, "designed to increase the volume of two-way trade on terms that are mutually beneficial." But the book ignores that this is certainly not the way it is working out. It just advocates more trade agreements to boost exports. Boosting exports is good, but it doesn't address what happens when the balance shifts to imports.

Clinton is saying that Bush came in and refused to enforce the rules, letting other countries just grab the jobs. He has a point, Bush didn't enforce trade laws and we lost 40-50,000 factories and millions of manufacturing jobs while he was President. But I think Clinton still has way too much faith in the good intentions of America's corporate elite. He seems to believe that just opening up trade means that our corporate leaders will strive forth to compete fairly in a world that will compete fairly in return. He misses the way that the trade laws were used by our own corporations to sidestep democracy, moving our own jobs to places that do not have democracy, so people are unable to demand good wages and working conditions. Then they came back to our own workers and said, in essence, "shut up and take pay and benefit cuts or we'll just move your job, too, and you and your family will starve."

Free trade agreements were supposed to be about trade. As Clinton writes, trade is a two-way exchange that is mutually beneficial. Well instead we have the result of job loss, a downward wage and benefits spiral and a terrible, terrible trade deficit that has been and is draining our economy -- not so mutually beneficial.

Really, is closing a factory here, moving the machines and raw materials and supply chain to another country, and then bringing the same goods back and selling them in the same stores something that should be called "trade?" Of course not, and it should never have been allowed.

It's The Trade Deficit!

Dave Johnson — Tue, 08 Nov 2011 17:55:28 -0500

A huge part of the reason we can't get out of this unemployment slump is the trade deficit. We don't buy American and neither do our "trade partners." We buy from them, they sell to us -- that's not "trade." Stimulus means we buy from them. Cutting taxes means the extra cash buys from them. Nothing we try brings jobs here because we don't buy enough here that's made here and they don't either. If we want to fix employment we have to fix trade.

The current unemployment crisis results, at least in large part, from the trade deficit. This has been masked by bubbles like the tech bubble and the housing bubble. Economist Paul Krugman explains, in a blog post, The Return Of Secular Stagnation,

But then the question is, why do we find it so hard to achieve full employment even with saving somewhat low by historical standards. And the answer seems clear: it’s the trade deficit. America in the 70s and 80s could have high savings, not hugely strong investment, but still have full employment because trade deficits weren’t as large compared with the economy as they are now.

And this in turn means that the savings glut possibly making the natural real rate negative is actually originating abroad, not at home.

Krugman is taking issue with the economist argument that we have a problem of too much savings without investment, using a chart showing savings declining. (Note that the inflection point is right as Reagan's policies start to hit.) He explains how this demonstrates that the problem is really our trade deficit.

Easier to understand: We have to fix trade if we are going to fix the economy.

China has accumulated more than a trillion dollars by selling to us and not buying from us. Think about what would happen to our economy if China used that money to place orders for US-made goods. Factories would be opening up, people would be hired, stores would be humming... When you think about how much good that would do, you are understanding the harm their sell-only trade policy has done. They were supposed to buy from us, too, because that is what trade is. But they didn't, and here we are.

Now, think about how much good it would do for China's economy, if our economy was humming from all those orders for our goods! When you think about that, and realize that China is not doing that, you might start to think that this is not an economic game China is playing. If it was about economics, they would use that money to place those orders, to revive our economy, which would mean we would be placing even more orders from them.

But they aren't. Why is that?

Trade Deals Pass Congress -- China Currency Bill More Important Than Ever

Dave Johnson — Thu, 13 Oct 2011 15:17:38 -0400

Congress just passed three more NAFTA-like trade deals, so our country's trade deficit is going to get even worse. And pressure on working people to accept pay and benefit cuts and longer and harder working hours is going to get even worse. And the rewards to the top 1%, at the expense of the rest of us, are going to get even greater. But we can still win the fight over China's manipulation of its currency. If we win this it lessens the difference between prices of goods made there and goods made here and can bring some jobs, factories, countries, industries and wealth back to the 99% of our country that doesn't benefit from these trade deals.

Message Of Trade Deals -- Loud And Clear

The message of these trade deals is loud and clear: shut up and accept pay and benefit cuts and longer and harder working hours. And if you don't like it we will move your job to a country where working people can't complain. In fact, labor leaders are regularly murdered in Columbia, one of the countries that Congress just approved a trade deal with. If approving a trade deal with a country in which labor leaders are killed for trying to make things better for working people doesn't send a loud and clear message to working people here, I don't know what does.

China Currency

China manipulates its currency to keep it "weak" (low) compared to the "strong" dollar. This means that goods made in China cost much less - up to 40% less - than goods made here, even before any wage differentials, exploitation of the environment, trade cheating, special subsidies and other trade violations are taken into account. China does this in order to capture the jobs, factories, companies and industries that make a country strong. We have let them do this for many years, leading to the economic situation we find ourselves in today.

One reason this continues is that big companies can threaten workers here with moving a job or factory there if they don't go along with big cuts in wages and benefits and working standards -- or just move the factory or company to take advantage of the differential. This benefits a wealthy few in the short term, and China in the long term after those wealthy few have sold the rest of out and cashed out for themselves.

This trade situation with China, while greatly enriching the top 1% here (and there), has hurt the rest of us so much, and drained so much wealth from the country, that even some Republicans are willing to support doing something about it. There are 61 Republican cosponsors of the bill to confront China over their currency manipulation!

Wall Street Sides With China

The Club For Growth, a Wall Street front group, has made the China currency bill a "litmus test." They have said they will oppose any Republicans who vote for it, siding with America against China. From Politico recently, Club for Growth warns GOP on China currency bill,

The influential Club for Growth is pressuring Republican presidential candidates and lawmakers to oppose bipartisan legislation cracking down on China’s currency policies.

... The Club for Growth has urged lawmakers to vote no on the bill, warning that the vote will be included in the group’s 2011 Congressional Scorecard, used to measure how fiscally conservative they are.

The Wall Street group says we should instead pass tax cuts, deregulate controls over how businesses behave toward the environment, workers, customers and their communities, and get rid of unions so the United States can be more like China, which they say would bring companies back.

What To Do

We need to get the bill voted on in the House of Representatives. Speaker Boehner is siding with China and refusing to let this bill come up for a vote. But there is a "discharge petition" circulating, that can force the bill to the floor for a vote. Click here for a list of 61 Republicans who cosponsored this bill but have not signed the petition to bring it up for a vote. Call these 61 Representatives and tell them you want them to help bring the bill to the House floor for a vote.

These Are The House Republicans Blocking The Crackdown On China Currency Manipulation. Call Them.

Dave Johnson — Wed, 12 Oct 2011 15:08:26 -0400

We buy a lot from China, and they don't buy much from us. Some call that "trade." The result is that our jobs, factories, companies, industries and wealth are moving to China. One very big thing we can do about this right now is to confront China over their currency manipulation and the Senate passed a bill to do just that. The House leadership, under the control of lobbyists siding with China, refuses to allow the bill to come up for a vote. You can contact co-sponsors of the bill and ask them to sign a "discharge petition" that will make that vote happen.

As Steven Capozzola explained yesterday in Why Should Congress Pass China Currency Legislation?,

What few seem to understand is that we are already in a trade war with China. It’s not one that we launched, nor one that we wanted. But China’s undervaluation of its currency, which violates world trade rules, is part of a deliberate, well-coordinated strategy to undercut U.S. manufacturers.

Currency manipulation has helped fuel China’s massive rise as a manufacturing powerhouse. And it’s also helped drive our massive trade deficit with Beijing, which reached a record $273 billion in 2010. This huge trade gap has cost 2.8 million U.S. jobs over the past decade—jobs in every state and congressional district, jobs in manufacturing, jobs in high-tech sectors… It’s a terribly one-sided trade relationship.

How did this happen? China intervenes in the currency market to buy dollars and set its own currency at an artificially low exchange rate. This makes Chinese goods 40% cheaper when entering the U.S. market while making our goods significantly more costly when exported to China.

... This is a bipartisan issue, one that marks a clear chance for Congress to stand up to a very protectionist, predatory campaign. China can purchase dollars, which are freely traded, in order to set its currency peg. But conversely, it is illegal to buy China’s closely held currency.

I wrote yesterday, in Will The U.S. House Side With China On Currency?

If we want to bring jobs and wealth back to the United States for the 99% of us who have been under extreme pressure we're going to have to do something about trade. The huge trade imbalances -- especially with China -- are sucking our jobs and factories and companies and industries and money out of the country. The biggest thing that can be done right now is to take action on China's currency manipulation.

...Speaker of the House Boehner is siding with China and is refusing to allow it to come before the House for a vote. (Reminder to self: do some research into the Citizens United Supreme Court decision enabling foreign money to influence our elections.)

The bill can be forced onto the House floor using a "discharge petition." You can take action to help get Republicans to sign the discharge petition so it comes to the floor. Click here to contact members of Congress and ask them to sign this discharge petition and end Chinese currency manipulation now.

What You Can Do

There are 61 Republican members of the House of Representatives who co-sponsored legislation to confront China over their currency manipulation: Currency Reform for Fair Trade Act (HR639). Contact them and ask them to sign the "discharge petition." They are:

Tim Murphy (PA)
Todd Aiken (MO)
Steve Austria (OH)
Lou Barletta (PA)
Brian Bilbray (CA)
Rob Bishop (UT)
Mo Brooks (AL)
Dan Burton (IN)
Shelley Moore Capito (WV)
Howard Coble (NC)
Chip Cravaack (MN)
Rick Crawford (AR)
Charles Dent (PA)
Jo Ann Emerson (MO)
Michael Fitzpatrick (PA)
Randy Forbes (VA)
Jeff Fortenberry (NE)
Jim Gerlach (PA)
Chris Gibson (NY)
Sam Graves (MO)
Morgan Griffith (VA)
Gregg Harper (MS)
Duncan Hunter (CA)
Bill Johnson (OH)
Tim Johnson (IL)
Walter Jones (NC)
Mike Kelly (PA)
Blaine Luetkemeyer (MO)
Steven LaTourette (OH)
Frank LoBiondo (NJ)
Donald Manzullo (IL)
Tom Marino (PA)
Thaddeus McCotter (MI)
Patrick McHenry (NC)
David McKinley (WV)
Patrick Meehan (PA)
Candice Miller (MI)
Sue Myrick (NC)
Tom Petri (WI)
Joe Pitts (PA)
Todd Platts (PA)
Jim Renacci (OH)
Scott Rigell (VA)
Dana Rohrabacher (CA)
Harold Rogers (KY)
Mike Rogers (AL)
Mike Rogers (MI)
Dennis Ross (FL)
John Runyan (NJ)
James Sensenbrenner (WI)
John Shimkus (IL)
Bill Shuster (PA)
Marlin Stutzman (IN)
Glenn Thompson (PA)
Michael Turner (OH)
Lynn Westmoreland (GA)
Ed Whitfield (KY)
Joe Wilson (SC)
Rob Wittman (VA)
Frank Wolf (VA)
Don Young (AK)