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Did Open Borders Destroy U.S. Manufacturing?

By Shlomo Maital

 open-borders

   In the recent US Presidential election, Donald Trump campaigned largely on how trade (i.e. imports, open borders) has destroyed blue-collar jobs. His voters agreed.

     But is this true? Have globalization, open trade in goods and services, and cheap imports, destroyed good US jobs? Or were there other causes?

     You won’t find a more authoritative answer than that from MIT, in Suzanne Berger’s 2013 book Making in America:   From Innovation to Market (MIT Press), based on her work with the MIT Task Force on Production in the Innovtion Economy.

       Here are some relevnt passages:

Even taking into account job losses resulting from outsourcing as well as import competition, it was difficult as recently as a decade ago to find clear evidence of a heavy impact of open borders on manufacturing employment. …In 2003, [such job losses] involved less than one percent of layoffs; in 2004 they went up to 2 per cent. …job losses in manufacturing were mainly the result of productivity gains which might reduce the total numbers of those needed to produce a finite quantity of goods. …[Studies showed] the bottom line was that Chinese imports accounted for 33 per cent of manufacturing job decline between 1990 and 2000 and 55 per cent between 2000 and 2007.   But [focusing mainly on rising Chinese productivity and falling China-facing trade barriers] 16 per cent of manufacturing job losses between 1990-2000, and 26 per cent between 2000 and 2007, were attributable to rising import competition from China.”

   Bottom line: At most, a third to a half.   And more likely:   one-sixth to one quarter of job losses were due to Chinese imports.  

     So what does that mean?   There were other causes, deeper ones. Labor-saving machinery and automation (robots). Low skills. And dumb policy. Berger notes: “Germany abandoned much of its low-end manufacturingwhile expanding employment in higher value-added segments.”   And America??

             Recently a former senior VP of Intel, Mooly Eden, spoke at Technion and noted that the moment manufacturing wages rose in China, Intel shifted to Vietnam and built 1 million square feet of manufacturing capacity there.  

             China lost jobs – why? Globalization? Or because their productivity failed to keep pace with wage increases?  

             It’s hard to predict the future. But here is one pretty safe guess. While Trump tackles America’s job problem and rebuilds manufacturing, based on a wrong assumption, he will fail.   It won’t help to start a trade war with China. So in four years, his supporters will find that he failed to deliver.

           What then? Will they vote Democrat? Or will we get an even farther-right crackpot candidate, as has happened in Europe?  

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Middle Class Blues: A Different Narrative

By Shlomo Maital

middle-class

   We are hearing endlessly about the struggling blue collar workers and the oppressed middle class, sinking into debt, losing jobs, struggling to stay afloat. We hear Donald Trump play on their fears and grudges.

     There is another narrative, one given in today’s New York Times by David Brooks. It is about resilient workers and middle class people, who adapt, shift jobs, lose one and gain another, learn new skills – and stay afloat, endure and even prevail. And there are lot of them.

     Here is how Brooks describes one such case:

   A few weeks ago I met a guy in Kentucky who’d lived through every trend of deindustrializing America.   He grew up about 65 years ago on a tobacco and cattle farm, but he always liked engines, so even while in high school he worked 40 hours a week in a garage. Then he went to work in a series of factories — making airplane parts, car seats, sheet metal and casings for those big air-conditioning fans you see on the top of buildings.   Every few years as the economy would shift, or jobs would go to Mexico, he’d get hit with a layoff. But the periods of unemployment were never longer than six months and he pieced together a career.

So, how did he piece together a career?

   His best job came in the middle of his career, when he was a supervisor at the sheet metal plant. But when the technology changed, he was no longer qualified to supervise the new workers, so they let him go.   He thought he’d just come in quietly on his final day, clean out his desk and sneak away.   But word got out, and when he emerged from his office, box in hand, there was a double line of guys stretching all the way from his office in back, across the factory floor and out to his car in the lot. He walked down that whole double line with tears flowing, with the guys clapping and cheering as he went.   We hear a lot about angry white men, but there is an honorable dignity to this guy.   Some of that dignity comes from the fact that he knows how to fix things. One of the undermining conditions of the modern factory is that the workers no longer directly build the products, they just service the machines and software that do. The bakers now no longer actually know how to bake bread.” But this guy in Kentucky can take care of himself — redo the plumbing at home or replace the brake pads.

And what was his ‘narrative’, his story, told to himself? One of betrayal, exploitation, deprival, social inequality?   None of that.

   It’s more of a reactive, coping narrative: A lot of the big forces were outside my control, but I adjusted, made the best of what was possible within my constraints and lived up to my responsibilities. ….

I adjusted. Made the best of what was possible. Lived up to my responsibilities.   This is a narrative that I believe is far far more representative of the working middle class, than the Trump “I’m-a-victim” narrative: “Washington screwed me, so I will vote for a scoundrel, because he expressed my anger, even though he hasn’t a clue about what middle class life is about.”  

People are basically resilient. They bounce back. And the ones with integrity do not cast ballots for those who cynically exploit the worst qualities among us – avoiding personal responsibility for our own fate.

 

What If Technology Does Destroy Jobs?

By Shlomo Maital

Summers

Larry Summers

   Larry Summers was Treasury Secretary under President Bill Clinton, President of Harvard, and is one of the world’s top macroeconomists. In a recent New York Times article on how technology is disrupting the world, the author recalls how Summers spoke in November at a conference, about his undergraduate days at MIT in the 1970s. Nobel Laureate Robert Solow made the case then that new technology boosts productivity and overall creates jobs, employment and wealth. Sociologists at the time responded that new technology often destroys jobs and wealth.

   “It sort of occurred to me,” Summers recalled, “suppose the ‘stupid’ people (sociologists) were right, and the ‘smart’ people (economists) were wrong. What would it look like?   Well – pretty much how the world looks today.

     Uber is eliminating taxi-driver jobs. Internet news is destroying print journalism jobs. Digital education will soon eliminate my job (as professor).   Long ago, software made the entire mid-level managers’ jobs (focused on processing and interpreting data) redundant. Add to that globalization and world trade, which led America to outsource its manufacturing to Asia.  

       What if technology really does eliminate jobs? What if, like Finland and Switzerland, we will need to consider providing a basic minimum living wage for everyone, when unemployment becomes widespread? (The referendum in Switzerland on this idea was soundly defeated…but nonetheless, the mere fact it happened is important).   What if in future, work itself will be a huge privilege and a luxury, granted only to a very few highly skilled, highly productive people who somehow are not made redundant by very smart machines?  

       The late MIT Dean and Professor Lester Thurow, who passed away recently, liked to say that sociology trumps economics. If sociology is about how people live and work together, and economics is about how money and capital procreate and proliferate,   then surely he was right. Perhaps it is time that economic policy should be shaped by the sociologists.

The Desperate Search for Good Jobs

By Shlomo Maital

jobs    

    Writing in the recent issue of Scientific American, the Swedish-British economist Karl Benedict Lund raises an issue at the core of our economic woes, and not sufficiently discussed:  Where in the world will we find well-paying jobs for young people, jobs that can sustain and help the middle class to endure?  

    The problem is, in the past,  new industries that were born out of innovation created jobs to replace the industries that were obsolete and dying.  Sunrise industries’ new employment offset the lost jobs of sunset industries.

    But no longer.  Frey notes:   The video-streaming startup Twitch, bought by Amazon for almost $1 billion,  employs only 170 people.   In the past a $1 b. company would employ many times that.   Google has annual revenues of $66 b.,  and employs only 53,000.   IBM, with roughly similar revenues, employs 8 times that (431,000 in 2013).   Dell employs 108,000.   But Dell and IBM are shedding huge numbers of workers.   Once, Dell came along to absorb many of the 250,000 (!) workers that IBM shed in 1993-5.  No longer.

     And Facebook?    Facebook employed only about 9,500 employees in 2014, with $8 billion in revenues.   When Internet companies like Google, Twitter and Facebook can generate a million dollars in revenue per employee,  the founders and shareholders rejoice, but ordinary folks who seek employment do not.

     Frey’s research reveals this fact:   only 0.5 per cent of the U.S. labor force was employed, in 2010, in industries that did not exist 10 years ago.   And there are quite a few such industries.

     How will society deal with innovation that creates wealth, products, services,  and in general wellbeing,   without actually producing many new jobs?   Will we have to accept a bifurcated society, where a fortunate handful become millionaires and the rest of us scrounge for handouts?  What happens when the old pattern of new industries creating jobs to replace ones lost by dying industries fails, and new industries simply don’t create jobs? 

   One possible solution:  A great many more of us will need to become independent business persons, creating our own job by starting small businesses.  This will take a whole new approach to the way we educate our young people, and a new support system that, for instance, can supply micro-credit to such businesses.  

 

 Whatever Happened to the U.S. Middle Class?

By Shlomo  Maital

   middle class

   The middle class is the bulwark, the core, of every nations’ democracy and economy.  It provides the labor, the capital and the stability that nations need.  This is why we should worry, when the middle class is disappearing, as it is in the U.S.  (Middle class is defined as a household with income from $35,000 to $100,000.)      

    A report in today’s Global New York Times by Dionne Searcey and Robert Gebeloff, based on their study,  reveals these facts:   

  1. 53 million middle class households, nearly half of all households, are aging; many are headed by those over 65. Why? Older Americans have the safety net of social security, which is politically safe and linked to the cost of living.   While middle class income has declined (median household income fell 9 per cent since the year 2000),  income of  households headed by elderly adults has risen by 14 per cent.  Problem is, that elderly safety net is going bankrupt.  
  2. In the late 1960s, 60 per cent of middle class households were comprised of two married adults with children.  Today?  It is just 25 per cent. 
  3. In the Great Recession, 2008 – ??,  “we lost a lot of middle-income jobs and we gained a lot of low-paying jobs”, says an expert from the American Enterprise Institute.  That is why the strong job figures lately are misleading.  They are Wal-Mart and McDonalds jobs.
  4. The middle class deludes itself. A NYT survey shows 60 per cent of people who call themselves middle class think that if they work hard they will become rich. But this is an illusion.  Social mobility in the U.S. has greatly declined.  To get rich and richer, you need to be rich already.

   I think the article fails to make a key and obvious point.  America’s political leaders were accomplices in shifting America’s manufacturing to Asia.  This destroyed millions of high-paying jobs (as in auto production).   It was done both by Democratic and Republican Presidents.  Nor is Congress even trying to get those jobs back.   Apparently, you cannot have a strong stable middle class unless your country makes things other than hamburgers.  Is that obvious?  America is now paying the price for its leaders’ blindness. 

     Meanwhile, the U.S. middle class has not disappeared, it has simply migrated; middle class families in China and India are booming, thanks in part to well-paying jobs.  

    In his State of the Union address, President Obama called the middle class the “foundation of the American economy”.  Really?    Then, why have you, Obama, and other leaders allowed the middle class to decline so drastically?  And what are you doing to reverse the trend?    

Blog entries written by Prof. Shlomo Maital

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