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Politicians Did Not Get Rich From Hollowing Out the Economy

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In his inauguration speech Trump said:

For too long, a small group in our nation’s capital has reaped the rewards of government while the people have born the cost. Washington flourished, but the people did not share in its wealth. Politicians prospered, but the jobs left and the factories closed. The establishment protected itself, but not the citizens of our country. Their victories have not been your victories. Their triumphs have not been your triumphs and, while they celebrated in our nation’s capital, there was little to celebrate for struggling families all across our land.

He claims that politicians got rich by off-shoring jobs and driving up trade deficits. This is an instance of a standard Republican lie, that our problems are caused by politicians. In fact, all the profits from off-shoring went to corporate executives and owners of corporations. They made political contributions, sure, but that doesn’t enrich anyone. The gains to citizens were some lower prices at a cost of whatever wars and worse-paying jobs.

The decisions to off-shore and outsource jobs are made by corporate executives and controlling owners. They had many reasons to invest in other countries, ranging from a desire to protect their own businesses from being underpriced by foreign entitiesk, incentives offered by foreign countries, lower labor costs, and access to foreign markets among others.

US policy in both parties since at least WWII has been generally sympathetic to foreign investment for many reasons, not least the belief that nations linked by commerce and trade are less likely to go to war.

Foreign investment is always dangerous. The risks include expropriation, local governments that won’t or can’t stop violence against plants and equipment, lack of protection of intellectual property, and others. Karl Polanyi discusses these risks in The Great Transformation. Hannah Arendt agrees in The Origins of Totalitarianism. In different words, and with different emphasis, they say Western European capitalists solved this problem by enlisting the government to protect them when they invested abroad. The same thing happened here. Thorstein Veblen saw it clearly in 1904:

… [W]ith the sanction of the great body of the people, even including those who have no pecuniary interests to serve in the matter, constitutional government has, in the main, become a department of the business organization and is guided by the advice of the business men. Chapter 8, Principles of Business Enterprises.

Here’s a discussion of the implications of that statement for foreign investment.

Right down to today, capital enlists the support of the government to protect it so it can make profits in other countries, and government responds for its own reasons. We have always used military force for that purpose, but now the primary tool is trade treaties. The recent example of the TPP stands out. It was written by corporations and their lobbyists and lawyers, and supported by mainstream economists. It was opposed by working people and unions and most progressives. It was supported by a bipartisan majority of legislators. It should be noted that it was rejected by Trump and Sanders and disparaged by Clinton.

I won’t try to untangle all the interlocking interests, or to discuss the negotiations between the two camps, government and capital. But Trump’s assertion that Washington politicians got rich off foreign investment is stupid and false. The people who got all the money from from foreign investment are the executives and the obscenely rich people who own and control these corporations.

The incoherence of Trump’s statements in his inauguration speech and in his campaign speeches about corporate overseas investment is displayed in this New York Times article discussing Trump’s meeting with CEOs of giant US manufacturers. The reporters, Nelson Schwartz and Alan Rappeport, say that Trump told the “titans of American business” that they had better move manufacturing jobs here, threatened them with taxes that look like tariffs, and offered rewards like lower taxes and fewer environmental regulations. The reporters say that this is pointless, because taxes and regulations do not determine where corporate investment are made.

The reporters say that the real cause of overseas investment is Wall Street, by which they mean Capitalists, including hedge fund managers, giant Banks, and the richest investors.

In some cases, Gordon Gekko-like hedge fund managers are to blame, but much of the time, it is the drive for bigger returns on 401(k) accounts, pension plans and other retirement vehicles that depend on steadily rising corporate profits and, in turn, a buoyant stock market.

That’s just wrong. Many pension funds are operated by private Wall Street firms through Gordon Gekko-like managers. The largest funds spread management around among several management firms, and invest with hedge funds, and get investment advice from Wall Street firms for the funds they manage themselves. The idea that Wall Street cares about small investors or their IRAs is silly. I’ll just ignore the stupidity of using a movie character when it’s easy to identify the real perpetrators. You could just read this article to find one, Daniel Loeb.

The actual problem is that the federal government let the interests of the rich set our industrial policy with no public input, and actively ignored the interests of US workers and citizens, and sometimes even the security interests of the nation.

I suppose it’s possible that Trump meant that the rich have too much influence in government, and he means to change that. But seriously, can anyone imagine that the Republicans or the neoliberal Democrats will allow Trump to initiate trade wars over protectionist tariffs? Does anyone think that Trump will do anything to harm the interests of the rich, or that Trump doesn’t personally identify with the rich and their interests?

And exactly how is this different from that time President Obama chewed out the banksters over their greed in April, 2009? Nothing changed then. Why should this time be different?

It won’t be different until a solid majority of voters come to grips with the fact that the dangerous elites in this country aren’t college professors or scientists or liberals. The dangerous elites are the rich people who control the giant corporations and the people who support them, in and out of government.

Trained in America; Clothed in China

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When ABC reported last week that the $1,400-$1,900+ uniforms Ralph Lauren won the contract to provide to Olympic athletes were made in China, Sherrod Brown not only pushed the US Olympic Committee to try to rectify the issue by the Winter 2014 Olympics, but he introduced a bill to require Federal uniforms to be made in the US (currently, they must be 51% US made).

But the news–which came out just before the Alliance for American Manufacturers released their yearly poll showing near unanimous support for what could be called an industrial policy to support US manufacturing–had a more interesting public relations effect.

For example, after CNN posted a list of US manufactured clothes in response to the uniform news, the sales of Lawson Nickol’s Ohio company, All American Clothing Company, skyrocketed to 14 times what they normally would be.

Brown had a conference call with Nickols (whose company is located outside of Dayton) and Youngstown native Nanette LePore (whose clothes are manufactured in the US, though of foreign–usually Italian–cloth) to talk about efforts to bring back clothing manufacture to the US.

Both make a profit–though not the same margins they’d make if they outsourced to China. LePore noted that Ralph Lauren spends his money on advertising rather than manufacturing. Nickols claimed his jeans last longer, which helps to offset the somewhat four times higher costs. But ultimately they were both sacrificing some profit to keep manufacturing close. For Nickols, it seems like a quality and patriotic issue. It’s patriotic for LePore, too, but manufacturing in midtown Manhattan also gives her much more direct control over her line.

And both mentioned things that would help bring clothing manufacturing back to the US–much of it pertaining to sourcing for lower cost runs.

At this point, we’re largely talking about symbolic gestures: Olympic uniforms, Federal uniforms, jeans made 6 hours away. But the underlying message seems to be (and AAM’s poll backs this up abstractly) that people will seek out things made in the US.

Santorum to “Plant His Flag” in Michigan

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I think there are two reasons that Rick Santorum is enjoying another surge in the GOP Primary Reality Show, having won all three caucus states last night, two in a blow-out.

First and foremost, Santorum is the only one of the GOP candidates to be able to somewhat credibly claim to be what Nixon (as best described by Rick Perlstein) an Orthogonian–the outsider who resents the arrogance of the elite.

Nixon’s insights into the possibilities of harnessing voter resentment, Perlstein maintains, derived from his own; indeed, he was a “serial collector of resentments.” As a student at Whittier College, a young Nixon addressed his own painful exclusion from the school’s social elites, the Franklins, by forming his own club of outsiders, the Orthogonians, open to “the strivers, those not to the manner born.” For Perlstein, the Franklin-Orthogonian divide captures perfectly a split between social and economic elites and everyone else (at least among whites) that Nixon manipulated to his advantage.

His signal achievement was in successfully casting his Democratic opponents as Franklins and enlisting many non-elites into the Orthogonian ranks. He thus seeded the ground for the culture wars that sprouted during the 1960s and persisted, in varying forms, ever since. For the white suburban middle class, admiring Nixon involved “seeing through the pretensions of the cosmopolitan liberals who claimed to know so much better than you . . . what was best for your country.” As a presidential candidate in 1968, he gave them a name: “the ‘silent center,’ ” those ” ‘millions . . . who do not demonstrate, who do not picket or protest loudly’ ” and who “lived virtuously.” Within a few years, he fastened on the term that would endure: the Silent Majority.

In last night’s victory speech Santorum took on Obama, repeating over and over that Obama thinks he “knows better” than Santorum’s supporters. He said Obama doesn’t listen. And while that’s not much different from the nastiness and victimization that Newt performed to win the South Carolina primary, coming from a “grandiose” college professor it just sounds off. And Mitt and his Cayman Island tax shelters?

If you ignore Santorum’s self-dealing on PACs and his stint as a lobbyist, you can almost believe that Santorum has faced the same challenges as many Americans.

This year’s Republican voters–the relatively few who are turning out to vote–hate the knowing technocracy Obama is giving them, and Santorum can play on their resentment of that in a way Mitt and Newt can’t.

But Santorum’s wins have, also, been focused (with the exception of Colorado) on Midwestern states. One reason for that, I believe, is his explicit call for manufacturing, pushing to eliminate taxes on manufacturing in this country. Whether or not you believe he would do that, he speaks to the many benefits of manufacturing in a way that resonates in the Midwest. (Nate Silver predicted Santorum’s strength in the Midwest last week.)

And so Rick Santorum has–predictably, in my opinion–announced he plans to focus on MI rather than AZ for the next GOP primary day, February 28 (suck it, bmaz!).

But with the next major contests for the GOP nomination in Arizon and Michigan on Feb. 28, Santorum said on msnbc’s “Morning Joe” Wednesday morning that, “We think Michigan’s a great place for us to plant our flag.”

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We’re Losing More Tech Jobs Than Socks Jobs to China

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Some of the more amazing stories about China’s domination of manufacturing these days pertain to the cities in China that make most of just one of the world’s consumer goods, like socks.

But a new study from the Economic Policy Institute makes it clear we haven’t just lost textile jobs to China, we’ve lost high tech manufacturing jobs too. The study finds, for example, that since China joined the WTO, the outsourcing of tech manufacturing to China has been the biggest driver of our trade deficit with China.

Within manufacturing, rapidly growing imports of computer and electronic parts (including computers, parts, semiconductors, and audio-video equipment) accounted for more than 44% of the $194 billion increase in the U.S. trade deficit with China between 2001 and 2010. The growth of this deficit contributed to the elimination of 909,400 U.S. jobs in computer and electronic products in this period. Indeed, in 2010, the total U.S. trade deficit with China was $278.3 billion—$124.3 billion of which was in computer and electronic parts.

Global trade in advanced technology products—often discussed as a source of comparative advantage for the United States—is instead dominated by China. This broad category of high-end technology products includes the more advanced elements of the computer and electronic parts industry as well as other sectors such as biotechnology, life sciences, aerospace, and nuclear technology. In 2010, the United States had a $94.2 billion deficit in advanced technology products with China, which was responsible for 34% of the total U.S.-China trade deficit. In contrast, the United States had a $13.3 billion surplus in ATP with the
rest of the world in 2010.

As a result, those parts of the country where such tech jobs had been concentrated have been inordinately affected.

The trade deficit in the computer and electronic parts industry grew the most, displacing 909,400 jobs—32.6% of all jobs displaced between 2001 and 2010. As a result, the hardest-hit congressional districts were in California, Texas, Oregon, and Massachusetts, where remaining jobs in those industries are concentrated.

[snip]

The three hardest-hit Congressional districts were all located in Silicon Valley in California, including the 15th (Santa Clara County, 39,669 jobs, 12.23% of all jobs in the district), the 14th (Palo Alto and nearby cities, 28,866 jobs, 9.0%), and the 16th (San Jose and other parts of Santa Clara County, 26,478 jobs, 8.72%).

Now, to a great degree, we already knew this. IBM sold its PC division to China in 2004. And whereas stories of abusive conditions for those who make branded goods used to focus on sneakers, they now focus on Apple’s products.

But it also ought to be a wake-up call. It took some time for the upheaval caused by NAFTA to thoroughly devastate the Rust Belt and parts of the south. And while CA may be large and diverse enough to recover from the loss of these jobs, in other places (surprisingly, perhaps, NH, which lost the highest percentage of its jobs to China), they’re not.

Plus, there’s the whole problem of lost capabilities. As this manufacturing goes to China, we lose the symbiotic effect of having people manufacture–say–iPhones down the road from the folks losing designing the new ones. Thus, while in the short term it may be easy for Steve Jobs to churn out new products sending this stuff to China, in the post-Steve Jobs era, particularly with this lost symbiosis, it may be harder to continue to innovate.

But don’t worry. I’m sure working class Californians will be just as happy in their service jobs as Michiganders are. Which is to say, not that much.

Finally! Our Declining Manufacturing Base Becomes a National Security Issue

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I have long argued that the way to address the big problems our government is currently all-but-ignoring, not least jobs and climate change, is to talk about how our current policies put us at significant national security risk. If nothing else, by demonstrating how these are national security issues, it’ll provide a way to reverse fear-monger against the Republicans trying to gut our country for profit.

Which is why I’m happy to learn that the intelligence community is assessing whether the decline in manufacturing in the US represents a national security threat.

The U.S. intelligence community will prepare a National Intelligence Estimate on the implications of the continuing decline in U.S. manufacturing capacity, said Rep. Jan Schakowsky (D-IL) citing recent news reports.

Our growing reliance on imports and lack of industrial infrastructure has become a national security concern,” said Rep. Schakowsky.  She spoke at a March 16 news conference (at 28:10) in opposition to the pending U.S.-Korea Free Trade Agreement.The Forbes report referenced by Rep. Schakowsky was “Intelligence Community Fears U.S. Manufacturing Decline,” by Loren Thompson, February 14. The decision to prepare an intelligence estimate was first reported by Richard McCormack in “Intelligence Director Will Look at National Security Implications of U.S. Manufacturing Decline,” Manufacturing & Technology News, February 3.

Note that Schakowsky is a member of (and until January, was a Subcommittee Chair on) the House Intelligence Committee. It’s possible her own requests generated this concern.

But the concern is real. As our manufacturing moves to places like China and (significantly for this context), Korea, we’ve lost certain capabilities. Indeed, when Bush slapped tariffs on steel in 2002, a number of tool and die factories moved to Korea where they could still access cheap steel while still supplying the US market. And in recent years, the loss of highly-skilled manufacturing process capabilities has meant we face challenges in sourcing some of our key military toys.

While it shouldn’t be the primary reason to invest in manufacturing in this country, ultimately if we keep losing it we’re going to have problems sustaining our military machine.

Most of the folks running DC may not much care that our middle class has disappeared along with our manufacturing base. But convince them that our declining manufacturing base might imperil their cherished military might, and they might finally wake up.