Saturday, March 16, 2013
It's Time that Canada Found a New/Old Economy
By the time you're in your 60s you've developed a sense of a certain cadence to life, something like a master Circadien rhythm that regulates life on our planet. Every now and then something happens and mankind skips a quarter or half a beat. That's what happened in the Great Depression and World War II. But before long we get back into the beat and life goes on. We have families, we make plans, we look to the future silently trusting in the metronome of life.
We don't do well when our civilizational beat becomes erratic, unpredictable, unreliable and yet that's what seems to be happening increasingly, certainly over the past ten years. Those institutions of government and economy to which we gave our trust and fealty and from which we expected a measure of benevolence and well being have severed their connections with us. They've moved off to greener pastures. The commonality of interest that we thought bound us all together is broken.
Yesterday I read The Failure of Free Market Capitalism and Economic Dissolution of the West by former U.S. Deputy Treasury Secretary Paul Craig Roberts, a PhD economist. It's available only as an e-book, something that prevents me from excerpting it at any length.
There's nothing particularly new in Roberts book but it's valuable for how he ties events together. It's not a comfortable, assuring read for anyone on the approaching retirement or just starting out on the career path. It's worse yet for those who already face employment insecurity.
Roberts book chronicles how we have given away our economic security and the future of our grandkids under the hollow promise of globalization. He traces how we outsourced our manufacturing base to the Third World with the promise that our great future would be assured in a new, "knowledge economy" that, in turn, is being itself outsourced.
The book explains how this outsourcing played a major role in the massive transfer of wealth from blue and white collar workers to the richest of the rich, the 1%. He delves deeply into the U.S. Bureau of Labor Statistics to explain his theories and sweep away the myths that have been used to blind us about globalization. Roberts also depicts how globalized capitalism is incompatible with and ultimately destructive of our democracy and institutions. Economists, he claims, have played dutiful whores to the undermining of western societies and their economies.
Roberts' economic theories have been controversial and widely criticized. He is the father of Reagonomics, the "supply side" theory but he presents it merely as a vehicle for reconciling Keynesian economics' overemphasis on the demand curve with the aggregate supply curve. He makes a point of criticizing those who used his supply side theories as a means of perpetrating the "trickle down" hoax of Voodoo economics. That's a debate I'll leave to the economists.
An interesting discussion is had of how mainstream economics focuses on man-made capital without giving due recognition to the role of nature's capital, thus encouraging the exhaustion of nature's capital in pursuit of short-term profit at the expense of future generations. Globalized capitalism, he argues, is extracting, pillaging even, the wealth that rightly belongs to future generations.
Roberts believes that unregulated capitalism is the main and inevitable cause of the recent global economic meltdown. Private power and privilege will, if allowed, be abused.
The author explains how a globalized economy reveals the myths and contradictions of free trade that western societies have been conditioned to accept without question. Offshoring, he argues, is not about free trade but is mere labour arbitrage between differently developed countries.
The consequences of deindustrializing are examined at length. Roberts speaks of "tradable jobs" - those jobs that actually make things other nations might buy. When nations give up their tradable job base they're left with service jobs and forced to import goods produced overseas by those outsourced tradable jobs. While this inflates the profits for the rentier class, the investment class, their gains are vastly exceeded by the loss of GDP benefits from the lost manufacturing process and labour wages.
There are telling insights gained from the Bureau of Labour Statistics. Since deregulation and the ascent of hyper-globalization, American job growth has been greatest for bartenders and waitresses. Worse yet, the market for jobs requiring university education is in rapid decline.
"Jobs offshoring has moved to China and India not merely American jobs, the also the consumer income, tax base, GDP, supply chains, and life careers associated with the jobs."
"...official U.S. statistics prove that the U.S. has been unable for years to produce any jobs in the tradable category, whether manufacturing or professional services. ...the U.S. economy has only been able to create jobs in non-tradable domestic services such as waitresses and bartenders, ambulatory health care, and retail trade. Before the real estate bubble burst, house construction was a [major] source of jobs."
"The current unemployment is unlike post-World War II unemployment. During the second half of the 20th century, the Federal Reserve would raise interest rates and put the economy into recession in order to cool down the rate of inflation. As inflation dropped and unemployment mounted, the Federal Reserve would reverse course and supply the economy with renewed growth in the money supply. Stimulative policy worked in those days because the jobs still existed to which workers could be called back as consumer demand rose."
Roberts examines the double-whammy of job outsourcing, foreign labour importing, something that we're seeing in Canada's fossil fuel industry.
"It has not been possible for U.S. corporations to move all manufacturing and professional service jobs, such as software engineering, offshore. Nevertheless, corporations have found another way to reduce their labor costs. The corporations tell Congress that there is a shortage of labor and that they require more foreign laborers to fill the "skill gap." The skilled workers brought in on H-1B work visas have no bargaining rights and are paid one-third less than U.S. wages. The difference goes into corporate and shareholder profits. Modern day capitalists are loyal only to money, not to country."
The author makes the case for abandoning globalization and the introduction of tariffs and tax policy to restore America's industrial base and its tradable job base.
"Since the days of President Franklin D. Roosevelt in the 1930s, the U.S. government has sought to protect employment of its citizens. President George H.W. Bush, William J. Clinton, George W. Bush and Barack Obama have turned their backs on this responsibility.
"'Free Trade' and 'Globalization' are the guises behind which class war is being conducted against the middle class by both political parties."
"Jobs offshoring neutralized the productivity advantages that American labor enjoyed. Working with superior capital, technology, and business organization, U.S. workers had nothing to fear from cheap labor abroad. Americans were far more productive than Indians and Chinese and their high productivity was reflected in high wages."
"Offshoring makes it possible for firms using First World capital and technology to produce goods and services for the U.S. market with low wage foreign labor. The result is to separate Americans' incomes from the production of goods and services that they consume."
"[Service] jobs offshoring, which began with call centers and back office operations is rapidly moving up the value chain. Business Week's Michael Mandel compared starting salaries in 2005 with those in 2001. He found a 12.7% decline in computer science pay, a 12% decline in computer engineering pay, and a 10.2% decline in electrical engineering pay."
Roberts points out that not even minimum-wage service jobs are safe for Americans, referencing a McDonald's burger joint that's experimenting with their drive-through order taking. The order is transmitted via satellite to a central location in India or China and from there back to the person preparing the order. They've found they get the orders correct more often and perform that function at costs below U.S. minimum wage.
The gutting of America's manufacturing base continues apace. Between 2001 and 2005 the U.S. lost 17% of its manufacturing jobs.
"The declines in some manufacturing sectors have more in common with a country undergoing saturation bombing during war than with a super-economy that is the 'envy of the world.' Between 2001 and 2006, communications equipment lost 43% of its workforce. Semiconductors and electronic components lost 37% of its workforce."
"Judging from its ten-year jobs projections for the years 2004-2014, the U.S. Department of Labor does not expect to see any significant high-tech job growth in the U.S. The knowledge jobs are being outsourced even more rapidly than the manufacturing jobs. The so-called 'new economy' was just another hoax perpetrated on the American people."
"In January 2011 there were 1,132,300 more waitresses and bartenders than in January, 2001, a gain of 14%. ...As of January, 2011, total government employment in the U.S. was 22,226,000, almost twice the number of Americans employed in manufacturing.
"The evidence is conclusive, 'globalism' or jobs offshoring has given U.S. employment a Third World complexion with jobs available only in government and nontradable domestic services."
And here's something truly chilling.
"The BLS projects that of the thirty occupations with the largest employment growth, only seven require university degrees. The BLS projects jobs for university graduates to total 1,434,000 over the decade of 2008-2018. This figure is only 60% of the number of university graduates projected by the National Center for Education statistics for the academic year 2011-2012 alone."
"A country whose work force is concentrated in domestic, nontradable services has no need for scientists and engineers and no need for universities."
"No one seems to understand that research, development, design and innovation take place in countries were things are made.
the loss of manufacturing means ultimately the loss of engineering and science. The newest plants embody the latest technology. If these plants are abroad that is where the cutting edge resides."
"The U.S. economy did not develop on the basis of free trade. If the costs that free traders attribute to trade protection are real, the costs did not prevent America's economic rise. Indeed much historical research concludes that trade protection was the reason for America's rises as an industrial and manufacturing power."
As noted at the outset, Robert's The Failure of Free Market Capitalism is a wake-up call not just for the States but for all of us in the West. There's so much more in his book that I can't deal with in this modest post. As mentioned earlier, there's really nothing new in this book, just the way everything is tied together.
The global economy has to be jettisoned. One of the reasons we're so dependent on resources, particularly bitumen, is because we have surrendered sovereignty over our domestic markets the very thing that empowers offshoring of our own manufacturing base. It hasn't worked. It's been based on myths and outright lies.
It's time to shift into steady-state economics, even Roberts gets that. Let's take our markets back, restore our manufacturing base and our middle class and let's do it while there's still time.