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.


Anonymous said...

Taking our markets back would also mean being able to purchase this book and read it without using a machine to do so? I so dislike the way books are being sold without access to the real thing in one´s hand. It´s called dictatorship of printed matter for the reason of greed.

The Mound of Sound said...

I understand your concern on printed books, Anon. What I often do these days is wait for a couple of months after a title I want is released and then pick up a nearly-new copy cheap from an outfit like Abe Books online.

I really like to have a hard copy of some books to keep in my library for reference purposes. Electronic books seem to come and go - from machines and from our memory.

Anonymous said...

"Roberts' economic theories have been controversial and widely criticized. He is the father of Reagonomics...."

So this wanker's 'theories' helped get us into our current mess?

You know what? Apology not accepted.

The Mound of Sound said...

I understand your reservations, Anon, but this post is about Roberts' evaluation of globalism and free trade, how they've been manipulated to undermine the middle class and his country's economy to effect the transfer of economic and political power to the richest of the rich, the 1%.

He never offered an apology for you to accept or reject. And he was quite resolved on distancing himself from the "voodoo" economics, the "trickle down effect" nonsense we associate with Reaganomics.

Don't be so judgmental and dismissive. This is about globalism and the demise of the North American manufacturing economy.

Anonymous said...

All of which brings many of today's realities into focus. Bits and pieces of news and data that are found from various sources almost daily help to pull it all together.

Recent news on the UN's human development report caught my interest for example and I wanted to know more about where the rising economies fit in that. China in particular. Although I could only find a complete report for 2012, not the latest one which shows a significant decline for the US, I discovered China ranked 101 out of 186 countries. Not very impressive given their foreign currency reserves etc.

More on how the US has declined here;

When you add in things like the recently published report card on the cost of the Cheney / Bush wars, @ 4 trillion and counting and other reports of US Corporations offshoring $1.7 trillion in profits to keep them away from the US taxman, the picture becomes even more grim.

Back to China for a moment, although it's difficult to assess China through western media, it appears the quality of life a Chinese citizen experiences depends on things like where you live and where you came from. Rural people are often denied status and services in urban areas, minimum wage rates are double in urban areas and people who live in better off regions, mostly close to the coast I take it, often receive much better services from government as it's largely based on the local economies and the money they have to work with. No equalization program for them, more like a Republican utopia where States rights are supreme.

Along with their gains, have come many downsides too, as in the tripling of the number of people who suffer from diabetes over the last decade. From 30 million to 90 million. An interesting aside to that is big pharma is giddy over the new opportunities. ie in the land of China, they spend approx $195 per diabetes sufferer per yr., as opposed to the US where the annual amount is closer to $5,000.

Which brings me to another example of globalization I read about recently. A story of the lowly chicken and KFC international. A group of farmers from Nepal raised a ruckus over chickens being imported to their neck of the woods from India. They destroyed several truck loads of frozen chicken destined for KFC's in their square as they couldn't understand why the chain couldn't source locally? The rest of the story says a lot about globalization as those chickens originated in South America. Brazil if memory serves.

Another interesting story is one of the humble mock crab made from fish caught in waters off North American coasts, shipped to China for processing, frozen and then shipped back to us. A lot of bunker C was expended on those efforts.

I'm about half way through watching a 2 hr. video presentation on a book Who Stole the American Dream? Author Hedrick Smith, which deals with a lot of the same issues that Roberts focuses on. There is also some discussion in it on the origins of the oligarchs banding together to use their wealth in a more focused way to increase control over politicians, laws, regulations and courts.

All of which is what makes the Green Party philosophy of grow, process and buy local very attractive to me.

Neocons war costs;

Offshore cash;

The Mound of Sound said...

All good points, Anon. China, like India, faces a harrowing environmental problem, the effect of which may mean both countries are at or near their zenith, economically, and at grave risk for destabilizing social upheaval. In both countries, natural resource sustainability is in decline even as their populations steadily grow and their per capita consumption increases. That is a candle burning fiercely at both ends.

As I write in a post today, I really think Canada needs to take the lead in transitioning to a "full world" or "steady state" economy rather than wait until some poor variety of it is imposed on us. If, however, governments and the Canadian public insist on pretending we're still back in the 80s, we'll be inviting calamity.

Anonymous said...

The future prospects of China and India are mind boggling really. China perhaps more so, as it seems like a candle burning on both ends with a stick of dynamite in the middle.

For Western economies, the fact that inequality between nations has come down but that inequality within nations has gone up should tell them something about the results of globalization. For the US to continue on it's present course is ludicrous, but there doesn't seem to be enough awareness and understanding of them being their own worst enemy due to that lack of awareness. All the Repub's and the oligarchs have to do to throw a wrench in their tiny minds is to present a plausible boogeyman and then promote the hell out of the fallacy. ie Unions killed the US auto industry, Ach! Arrogance among the big 3's Executives and greed killed that goose. With an ample dollop of stupidity on top. Even when Iacocca showed them the way out, they went back to their big vehicle, big engine, big margin per unit strategies that almost sunk them the first time around after the Japanese invasion and the OPEC crisis.

And of course, the taxpayers are on the hook for that one too.

As for Canada, my reading tells me that these wonderful free trade deals aren't really so marvelous. Statistics tells the rest a person needs to know. Things like upward wealth transfer and that a study on the economics of Canada's existing free trade deals shows that the countries we deal with end up with the better share. Imports from those countries has grown more than it has with countries we don't have deals with and exports to those countries has grown less than exports to countries we don't have a trade deal with.

Economist Harper's answer? More free trade he can promote oil, coal and mineral exports. What a guy.

The Mound of Sound said...

Our decision-making processes have become deeply flawed. We treat government as though it was just another variety of corporate governance, something that encourages short-term thinking and extremely narrow focus. Government in service to the public needs to be expansive and forward looking. It is the duty of government, for example, to accommodate posterity in its planning. It is the duty of government to respect the "precautionary principle" (you can find more by searching this blog) in its planning.

Harper's former BFF, Tom Flanagan volunteered that our prime minister actually abhors vision. Without that he can merely rule, not govern. Without vision the future is severely discounted.

Anonymous said...

When I was young I used to think that Corporations thought and planned in terms of 20 yrs or so into the future and that gave them a definite advantage over small businesses that didn't have access to the levels of capital the big guys had. I still believe that was true and remains so to a degree, but their focus seems to have changed in a number of ways. First that long term planning now seems focused on controlling the politicians and the rules as much as business planning. Second I think they want more and quicker returns than they used to. Maybe it's because they aren't all that confident in what they are doing and the long term outcome? Maybe it's just greed.

The author of that book I referred to above discussed the growth of lobbyists in the US and said there were less than a 100 lobbying firms when the Conservative guru started the movement to expand Corporate influence in Nixon's time. That has grown to 12,374 firms in the US in 2012.

Here's an interesting link on lobbying and it's $3,277,514,737 cost last year.

Then there's the money supply and their control of that. Woe be it to the person or country who aspires to mess with that, as Mo Gaddafi discovered. Lot's of info on Mo and the oligarchs here;

The Mound of Sound said...

You touch on something I haven't brought up for some time, Anon, the difference between a manufacturing-based economy and today's FIRE (finance/insurance/real estate) economy.

A manufacturing-based economy does look more to the future. It also accepts more modest but sustained profitability. A FIRE-economy, of the sort we're left with after offshoring our manufacturing base, is inherently opportunistic which goes a long way to explain America's modern cyclical "bubble economy."

Look at what has happened since the "new economy" saw the offshoring of manufacturing. It began with the Savings & Loan scandal, then the Dot.Com bubble, the Enron/WorldCom scandal, the real estate bubble and the derivatives/credit default swap fiasco. Now we're in the midst of the biggest bubble of them all - the Carbon Bubble.

Vast fortunes are made, but it all amounts to a transfer of unearned wealth from wiped out middle class investors and pension funds into the pockets of the richest of the rich. And yet these same ruined middle class folks, very much like the vivisectionist's dog, lovingly lick the hand holding the scalpel in their bellies.

Anonymous said...

An interesting post... In 2005 Jared Diamond wrote “Collapse: How Societies Choose to Fail or Succeed.” But it's a stretch to hope that any academic text can deter a lobotomized machine already out of control.

Diamond did offer some useful concepts: like “Landscape Amnesia”

You're right, “by the time you're in your 60s” the cumulative view of what has changed for the worst is broader based.

Most people under 40 simply haven't lived when governments or businesses were trusted. What people wish for now, we have seen vanish.

Landscape? People who return to an area decades later see instantly which changes have occurred. People who are new to an area do not. They help adapt themselves by blurring what those changes cost them. It shapes their frame of reference.

Older people remember when governments not only supported the public interest, but were esteemed for many successes. What happened?

Except for one absent word, Ronald Reagan almost painted the picture to perfection. He should have said, “Corrupted Government Is The Problem.”

For 30 years: mass firings; ludicrous denials of service; giveaways of public assets to corporate backers; regressive taxation; routine price-gouging; excessive fees; mass pollution of air, ocean and land - on a scale that would embarrass the USSR – was this useful devastation?

Supposedly yes. Let's call it: “Economic Reform” and “Restructuring”. Very Serious Stuff, not just looting masked by lies to protect crooks in nice suits.

For younger people “the way things are” [and hence always were] is that corruption is constant, if now admittedly at epidemic proportions. Led by business, they see both estates are blindly committed to a suicidal lemmings' march to economic oblivion.

In medical history, bleeding the pauper to death as a Cure was called bloodletting. Today it's called Austerity, Job Outsourcing, and Industrial Offshoring. There's no evidence that it's working to our benefit at all..

In BC, blogger Alex Tsakumis noted that, in the last week alone, not only were there 8 new scandals, but the BC media was doing its utmost to foof away and ignore them all.

In my youth – adults were shocked to read about 8 similar scandals -- per year.

And the press in those days? Believe me: it was Ferocious.

Global said...
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