Manufacturing and trade news do not get much coverage in our mainstream press. Japanese obsess over trade data, as do the Chinese, Koreans, and most others who take manufacturing seriously. This is obvious from reading any of the mainstream and business-oriented newspapers overseas.
Ours? The focus is more on Wall Street, corporate profits, and finance. Our corporate media does not want to spend much time on the implications of large, chronic, and structural trade deficits, except for the predictable paeans to free trade, how much we benefit, and how boorishly stupid you are if you are not a committed free trader. Honest analyses of how we arrived at our current condition are rare; most commentary is ideologically driven tripe that contends workers are overpaid and investors need more profits.
To be sure, we have all read of the decline of American manufacturing. And for those who are determined to know, many websites and blogs, especially those hosted by academics, cover these subjects very well. But while complaints about Chinese currency manipulation and the hazards of doing business in China do get coverage, little is said in the mainstream media about the role of American corporations and how they turned over technology and manufacturing to China and other trade competitors, all in an effort to tap cheap labor, ignore the challenges and capital requirements of advanced manufacturing, boost short-term profits, and please the investor class.
As Chinese wages continue to climb, we are now seeing some evidence of a pick-up in US manufacturing. But a central conundrum remains: Should it be a matter of policy to promote the return of manufacturing to the US? Or is the market going to resolve domestic manufacturing, and perhaps give a boost to exports, without policy intervention?
It is hard to get enthusiastic about an improving manufacturing sector, especially in the face of new data. I once would have welcomed it more openly, but it is becoming increasingly clear that a global economy or neo-mercantilist trading partners are only secondary reasons. In other words, less blame should be attributed to cheap labor in China and more to the desire for cheap labor in the US. The current condition of the US, complete with massive trade and current account deficits, is the direct result of wealthy and well-connected purveyors of neo-liberal free markets. It is they who have hobbled government's essential regulatory role (derivatives anyone?) and facilitated the dominance of finance and the rentier class.
So there is little reason to think that newly created manufacturing jobs are going to pay very well. Neo-liberal policy wonks, along with right-wing politicians, have had a 30+ year run promoting ideas, policies, and legislation that has weakened labor unions, kept minimum wages low, undermined workers' rights and put into place an elaborate tax code that ensures that corporations will largely avoid taxes. All of that in addition to the glories of free and unfettered international trade.
All of which was always the goal. To the extent that corporations locate or relocate manufacturing in the US, it will only be in response to low wages, obscene tax giveaways from states, the absence of unions, and elaborate agreements with government officials that ensure corporations will continue to privatize the benefits and socialize that costs. If manufacturing does meaningfully increase in the US, it will only be
because wages have been driven down. If wages go up, even in accordance
with productivity gains, corporations will threaten to off-shore
production once again.
Showing posts with label neo-mercantilist. Show all posts
Showing posts with label neo-mercantilist. Show all posts
Tuesday, July 9, 2013
Monday, September 17, 2012
The Road to Plutocracy
The United States once generally adhered to economic policies that were pretty common sense on their face: We believed in economic democracy, not oligarchy, we believed that severe maldistribution of wealth was not just fundamentally unfair, but unsustainable and dangerous. For generations we properly regulated banks and we had few banking issues as a result.
When the US fought wars, we paid for them in part with steeply progressive--and temporary--tax rates. It was obvious to us and to our trading partners that manufacturing and a modern infrastructure were the bases of economic strength; banks should only play a supportive role. Moreover the US generously supported public universities, which returned the favor by providing us with scientific and technological preeminence. Economic doctrine and history both informed mainstream policies.
We once understood that a strong middle class was essential to overall prosperity as well as the foundation of democracy and free elections. As part of the social contract, industry generally worked with labor, offering wages that were in line with ever-rising productivity. There was little vilification of labor unions at a time when membership was far higher. Corporate dividends and government interest were paid overwhelmingly to Americans and not to neo-mercantilists in Asia and shadowy investors in the Cayman Islands. While the wealthy have always benefited the most, dividends and interest payments in the past were mostly pumped back into local communities. In other words, debt and equities were held almost entirely by Americans. Recipients spent this unearned income within the US, largely in their own communities. That which they saved went into a local banks and credit unions, not Wall Street. This whole process helped grow the economy and stabilize neighborhoods.
We would have been aghast at the idea that massive, intractable trade deficits would arrive and be accepted with surprisingly alacrity. That banks would be allowed to once again trade in securities, take wild, highly-leveraged bets with other people's money, dominate the political process, and virtually insulate themselves from legal accountability. Because of compliant politicians who now have all the money they need to stay in office, the big banks and other stars of Wall Street have been able to maximize gains to themselves, and spread losses onto others, primarily tax payers. This includes companies that have been propped up by taxpayers. It's a sweet deal for the investor class; get the middle class to foot the bill, while dividends and capital gains go overwhelmingly to the investor class. It is, at its simplest, a rigged financial system that has privatized the gains and socialized the costs.
It is all coming undone, though not by the middle class, not by local banks, not by unions, and certainly not by gays, secularists, feminists, immigrants, or Democrats trying to rein in a bloated defense budget. But we have been assured repeatedly that minimal regulations are good because unfettered financial markets will make the best decisions, that they allocate capital most efficiently. Neo-liberalism fetishizes minimal regulations, free and unmonitored movement of capital, low taxes, and free trade.That same neo-liberalism has been a cheerleader for policies that have hollowed out our industrial base, turned the economy over to a rapacious financial system, have put us into deep debt to Japan, China, and elsewhere. In the process, dividends and interest payments that used to stimulate the American economy now stimulate theirs.
Now we are told to spend freely, with few admonishments to save more. Our economic system is now deeply dependent on middle class consumers willing to endlessly consume, a process that is far less beneficial than in decades past because so much of what we buy is imported. Part of the massive earnings enjoyed by our trading partners is now used to finance US debt. The Reagan administration set us on this course of indebtedness because it knew foreign governments had piles of US dollars, and because conservatives in our own government refused to allow a level of taxation that would pay the bills. The 1% are now able to avoid taxation on income that would have been taxed in the past; taxes that would have helped to pay for the Iraq war, which has gone unpaid, and such things as maintaining a modern infrastructure.
Most of the middle class is in serious debt. Families will not and should not spend freely if their job security is in question. Many have experienced wage reductions as they move from one employer to another. An ever-growing proportion of American families realize they cannot simultaneously save enough for retirement, pay for basics, including health care, rising food and energy prices--especially in the face of no commensurate wage increases-- and also set aside for their children's needs, including college tuition. This is not a sudden condition; it has been building for decades.
The right wing and other intellectual thugs want you to believe that it started with President Obama. They hope you don't notice the policies they are espousing are the same ones that have been largely in place for most of the last 30 plus years.
It is, in any event, a laughably ignorant concept to argue that Obama is even in a position to have anything more than a modest effect, for good or bad. The conditions that most people and the government are now in are far larger and intractable for any president to handle. It has taken America 30+ years to get here, it cannot be turned around in four years, not when Bush handed Obama a shit storm and two unpaid wars, not when Republicans oppose him on every substantive point, and not when those same Republicans are able to exploit what we now see are serious shortcomings in the structure of our system of government.
It has taken the US decades to drift into the present condition. During this time the wealthy have garnered ever more of the wealth, paid ever decreasing taxes for it, run corporations that have earned more, paid lower wages, have been taxed less, and have more freedom to move capital around the world, and fewer obligations to middle class families. This is as the wealthy have always wanted it, and it is what today's Republican Party wants. Their biggest concern is that President Obama would do something to stop this inexorable trend towards plutocracy.
When the US fought wars, we paid for them in part with steeply progressive--and temporary--tax rates. It was obvious to us and to our trading partners that manufacturing and a modern infrastructure were the bases of economic strength; banks should only play a supportive role. Moreover the US generously supported public universities, which returned the favor by providing us with scientific and technological preeminence. Economic doctrine and history both informed mainstream policies.
We once understood that a strong middle class was essential to overall prosperity as well as the foundation of democracy and free elections. As part of the social contract, industry generally worked with labor, offering wages that were in line with ever-rising productivity. There was little vilification of labor unions at a time when membership was far higher. Corporate dividends and government interest were paid overwhelmingly to Americans and not to neo-mercantilists in Asia and shadowy investors in the Cayman Islands. While the wealthy have always benefited the most, dividends and interest payments in the past were mostly pumped back into local communities. In other words, debt and equities were held almost entirely by Americans. Recipients spent this unearned income within the US, largely in their own communities. That which they saved went into a local banks and credit unions, not Wall Street. This whole process helped grow the economy and stabilize neighborhoods.
We would have been aghast at the idea that massive, intractable trade deficits would arrive and be accepted with surprisingly alacrity. That banks would be allowed to once again trade in securities, take wild, highly-leveraged bets with other people's money, dominate the political process, and virtually insulate themselves from legal accountability. Because of compliant politicians who now have all the money they need to stay in office, the big banks and other stars of Wall Street have been able to maximize gains to themselves, and spread losses onto others, primarily tax payers. This includes companies that have been propped up by taxpayers. It's a sweet deal for the investor class; get the middle class to foot the bill, while dividends and capital gains go overwhelmingly to the investor class. It is, at its simplest, a rigged financial system that has privatized the gains and socialized the costs.
It is all coming undone, though not by the middle class, not by local banks, not by unions, and certainly not by gays, secularists, feminists, immigrants, or Democrats trying to rein in a bloated defense budget. But we have been assured repeatedly that minimal regulations are good because unfettered financial markets will make the best decisions, that they allocate capital most efficiently. Neo-liberalism fetishizes minimal regulations, free and unmonitored movement of capital, low taxes, and free trade.That same neo-liberalism has been a cheerleader for policies that have hollowed out our industrial base, turned the economy over to a rapacious financial system, have put us into deep debt to Japan, China, and elsewhere. In the process, dividends and interest payments that used to stimulate the American economy now stimulate theirs.
Now we are told to spend freely, with few admonishments to save more. Our economic system is now deeply dependent on middle class consumers willing to endlessly consume, a process that is far less beneficial than in decades past because so much of what we buy is imported. Part of the massive earnings enjoyed by our trading partners is now used to finance US debt. The Reagan administration set us on this course of indebtedness because it knew foreign governments had piles of US dollars, and because conservatives in our own government refused to allow a level of taxation that would pay the bills. The 1% are now able to avoid taxation on income that would have been taxed in the past; taxes that would have helped to pay for the Iraq war, which has gone unpaid, and such things as maintaining a modern infrastructure.
Most of the middle class is in serious debt. Families will not and should not spend freely if their job security is in question. Many have experienced wage reductions as they move from one employer to another. An ever-growing proportion of American families realize they cannot simultaneously save enough for retirement, pay for basics, including health care, rising food and energy prices--especially in the face of no commensurate wage increases-- and also set aside for their children's needs, including college tuition. This is not a sudden condition; it has been building for decades.
The right wing and other intellectual thugs want you to believe that it started with President Obama. They hope you don't notice the policies they are espousing are the same ones that have been largely in place for most of the last 30 plus years.
It is, in any event, a laughably ignorant concept to argue that Obama is even in a position to have anything more than a modest effect, for good or bad. The conditions that most people and the government are now in are far larger and intractable for any president to handle. It has taken America 30+ years to get here, it cannot be turned around in four years, not when Bush handed Obama a shit storm and two unpaid wars, not when Republicans oppose him on every substantive point, and not when those same Republicans are able to exploit what we now see are serious shortcomings in the structure of our system of government.
It has taken the US decades to drift into the present condition. During this time the wealthy have garnered ever more of the wealth, paid ever decreasing taxes for it, run corporations that have earned more, paid lower wages, have been taxed less, and have more freedom to move capital around the world, and fewer obligations to middle class families. This is as the wealthy have always wanted it, and it is what today's Republican Party wants. Their biggest concern is that President Obama would do something to stop this inexorable trend towards plutocracy.
Friday, July 30, 2010
Facts and Filters
Business media, like all media, has its own internal model or set of assumptions that drive commentary. Publications in the field often engage in obvious ideological cheerleading. On a more subtle level, much of what is written obscures a reliance on a circumscribed model that shapes our views and unconsciously walls off alternative interpretations.
For example, the June 23 online edition of InformationWeek reported that giant Chinese PC maker Lenovo recorded a 10.2% share of global PC sales, the first time the company has garnered a double-digit share. Lenovo CEO Yang Yuangqing is naturally ecstatic at his company's performance, and gushed about Lenovo's “two-fisted strategy.”
It's almost as if he thinks Lenovo's innovative products were the reason. Or was it brilliant marketing? InformationWeek seems impressed, noting that Lenovo's 47% year on year sales increase was the industry's highest, but then ponders, almost as an afterthought, why Lenovo's profit margin of 0.78% is so much lower than its American competitors.
InformationWeek did not bother to connect a few dots. By way of contrast, the print edition of BusinessWeek (April 5, 2010) ran a major article on how Western companies are finding that doing business in China is becoming increasingly difficult. As BW details, Chinese officials are ramping up a variety of neo-mercantilist tactics to ensure the success of Chinese firms and to keep foreign business in check.
One such tactic is a policy of “indigenous innovation” which means, among other things, government procurement contracts are to give preference to Chinese suppliers. Lenovo was specifically named as a beneficiary of this Japan-inspired policy.
Combine this with China's weak currency, also the intended result of government policy, and low labor costs, and you have the real reasons why Lenovo is enjoying outsized sales increases. Despite all that, Lenovo registered paper-thin profit margins. So where is the innovation? And with so much in its favor, one might ask why Lenovo does not have large margins to go with its revenues. Either Lenovo is hugely inefficient, or it is dumping products in its overseas markets. The former is possible, the latter would fit in with the neo-mercantilist devotion to market share and reduced emphasis on profits. And as with government favoritism, this is in line with the Japanese experience.
Two different sets of assumptions on what is driving commerce, two different commentaries, and two very different conclusions on impact and importance.
Just remember why unemployment is slated to stay chronically high for years to come and why corporations and our government policymakers have allowed manufacturing to deteriorate.
These are the dots they refuse to connect.
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