United States Domestic Manufacturing vs. Free Trade

Domestic Manufacturing vs. Free Trade
This post is prompted by comments posted here and here, so if you haven't read those, two references might elude you: "Darwinian Capitalism" and "obsession with manufacturing." Not to worry, you'll get the point.

I have never witnessed “Darwinian Capitalism,” nor has anyone else that I’m aware of, so I can’t comment on it. What I can comment on is the variant I live under, and the variants that I witness, directly or indirectly, around the world. All of these flavors of capitalism are manipulated to the advantage of the most powerful participants -- the capitalized (those who derive incomes from investments), as opposed to wage earners. Such manipulation takes the form of favorably lax regulation and regressive income taxes, and these tend to stratify society by concentrating wealth at the top. Rather than thinking about “safety nets” for the poor, we should think about “restraining nets” for the rich to minimize the corrupting influence of wealth.

One way to do this is through progressive taxation, which provides government with the resources to monitor (regulate) the creation of wealth, compensate (educate) victims of exploitation, and clean up the environmental disasters visited on us all by the heedless behavior of amoral business ventures. Another way to minimize the corrupting influence of wealth on an industrialized economy is through trade unions. Through collective bargaining, trade unions counter the leverage exerted by management and give wage earners some of the same insurance against boom/bust cycles that the capitalized enjoy, i.e. a cushion of resources: unemployment and health insurance for workers, investments for the capitalized.

As far as an “obsession with manufacturing,” I can’t comment on the views of others, but for myself, manufacturing is not an obsession. In fact, I’m not that fond of the idea of a “consumerist” society inundated by cheap, throwaway crap. But manufacturing is a means to an end: survival. So are agriculture and hunting-gathering. None of which, by the way, are mutually exclusive, so I don’t really see them as a linear, evolutionary progression with one replacing the other as some describe it. We still have plenty of agriculture, though now on a much larger, unsustainable scale. And we still have hunter-gatherers. OK, hunter-gatherers are fewer in number, but they exist, even in industrialized countries -- witness various forms of squatting, trash sorting, and scrap metal recycling.

And as a means to an end slightly more desirable than mere survival -- broad prosperity -- manufacturing has done reasonably well, provided we have strong trade unions, muscular regulation, protective tariffs, and progressive taxation. When those constraints on capitalism are in place, our society has flourished, and by flourished I mean nearly everyone benefited, not just a miniscule subsection at the pinnacle of the food chain. Think of the constraints as a sturdy fuselage to hang the wings of capitalism on. Without one, the other is useless. (Except to wing builders who profit from the mess created by flimsy aircraft falling out of the sky.)

In a balanced economy, with some hunter-gatherers, some agriculture, some manufacturing, some service and finance every reasonably industrious member could find a niche. Sure, productivity and efficiency gains fostered by improved technology would eliminate some jobs in every sector, but improved technology would create new jobs in other sectors, notably manufacturing. Technology continuously obsoletes one manufactured device in favor of another, whether it’s a consumer toy like a DVD player, or a machine used in a plant that manufactures DVD players. Thus, manufacturing plants are continuously re-tooling to manufacture the latest product at the least cost (provided there is fair competition to insure the necessity of such investment).

Since the 1970’s the middle class and poor have been the victim of diminished domestic manufacturing and exports replaced by foreign manufacturing and imports. Since the 1980’s, most of the new wealth in the U.S. has been generated in the finance sector, where salaries are disproportionately -- insanely -- high at the top, and poverty-line low at the bottom (and not that numerous, and not unionized). This does not represent a natural economic evolution of society. It is a trend induced by an affluent minority who depend on investments for their income.

Since this affluent minority traditionally invested in American manufacturing, and with tariffs on foreign imports low, and with manufacturing capacity restored in post WWII Japan (followed by Hong Kong, S. Korea, Singapore, Indonesia, Malaysia, Thailand and finally China), investors pressured management to increase short-term profits. The best way -- the only way -- to yield these short term profits was to eliminate expensive, well-paid, unionized, pensioned, health-insured, worker-safety protected, environmentally responsible jobs in favor of cheap, underpaid, non-unionized, un-pensioned, un-health-insured, workers with unsafe jobs in environmentally catastrophic overseas plants. That is, a return to the conditions that existed in the United States and Europe at the turn of the 19th century before trade unions and environmentalists fought long hard battles to improve our lot. How come off shoring didn’t happen sooner? Because, throughout the industrial revolution, up until about WWI, the U.S. maintained tariffs that protected U.S. manufacturers against a flood of overseas products. Then we had WWI, followed by the Great Depression, followed by WWII, all of which discourage imports, and, or decimated manufacturing capacity everywhere but in the United States. So, it wasn’t until the 1970’s that imports began to nibble away at our manufacturing primacy.

So, yes, as a whole, the United States has grown wealthier as manufacturing declined, but that wealth is now nearly as concentrated at the top as it was before the industrial revolution -- the middle-class is dying on the vine. So we have cheaper consumer products, but steadily flat or declining middle-class incomes and standards of living, and more two-income households that barely survive.

And, we’ve sold off our creative prowess. Sure, we still have the movie industry. We can export a few movies. And sure, we still have Boeing (barely); and Caterpillar (barely); and a bunch of pharmaceuticals and banks and niche manufacturers. But those are a drop in the bucket compared to all the stuff we need to survive -- manufactured stuff. Stuff manufactured overseas. Hence, our huge and economically menacing trade deficit. On the “free trade” governed world market, we buy tons of stuff, but we don’t sell much. So, it’s not so much free trade that we participate in, it’s free shopping. And if you keep shopping without any income, you’re gonna go broke -- which we are.

Imagine now, instead, that we manufacture our own shoes and shirts and dresses; and electronic components and cell phones, and TV’s and cars (preferably trains and buses); and electricity generator components; and cables and wires to connect all this high-tech stuff; and... you get the idea -- we manufacture stuff here, our income stays here. And we continue to invest in broad prosperity -- elevating the middle class, and poor. And we preserve our intellectual capacity to design the manufacturing plants and products of the future. Skills that now, to our collective shame, we are allowing to atrophy (skills, such as machine tooling, I assure you, most bankers can not even conceive of).

And yes, if we manufacture stuff here, and pay people reasonable wages, and insure them against old age and health catastrophe, and protect our shared environment, we will pay more for stuff. But, we will have a constant supply of well-paid jobs for everyone, not just essayists with PhD’s who promote free trade, and creative financiers who sell hedge funds to insulate the wealthy against tanking domestic markets. Besides, if free-trade worked as advertised, that stuff we buy overseas should cost a lot more soon enough as foreign manufacturers...wait for it... pay people reasonable wages, and insure them against old age and health catastrophe, and protect our shared environment... or will they? Not likely, considering the state of governance in most of the countries we buy from. Anyway, it hasn’t happened in the thirty years since off shoring got so popular.

Make whatever predictions you want about the rosy future under free trade, but we do not yet have the much touted and oft-promised highly educated workforce of the future. We have a partially highly educated workforce, a partially moderately educated workforce, and a partially not that well educated workforce. A large fraction of those folks will always be content to clock-in at an assembly line, and bang out their eight-hour day in return for a reasonable living standard and reasonable protections against bankruptcy induced by the vagaries of human health. What’s wrong with that? Every immigrant wave that came here and built this country started there? Why pull the rug out now, when all we get in return is a really rich upper crust with big houses for the rest of us to admire from outside the gates?

My preceding free trade post is here: Free Traders: Friends or Foes?

Here's a bracing rundown of NAFTA's caustic effects from Robert E. Scott at the Economic Policy Institute (www.epi.org): The high price of ‘free’ trade

Former Senator Fritz Hollings seems to concur:
We Are in Real Trouble
Politics Like Cancer

Here's a nice roundup of NY Times articles on NAFTA: http://topics.nytimes.com/top/reference/timestopics/subjects/n/north_american_free_trade_agreement/index.html

And here's a nice little Wiki history of tariffs in the United States: http://en.wikipedia.org/wiki/Tariff_in_American_history

Mountaintop Removal: Tell Congress to End It

Mountaintop removal coal mining is a callous attack on our common heritage that will be mourned and condemned by future generations.

Do you want to responsible for that? I don't.

Join Ashley Judd and the Sierra Club in their battle to preserve the mountain vistas and verdant hollows of the Appalachians at: http://action.sierraclub.org/site/PageServer?pagename=Coal_Mining_Tracker&autologin=true

This attack on our land provides us only 5% of the coal we burn, but poisons downstream residents and drives them from their homes, schools and workplaces. It wipes out animal populations for miles around where residents hunted and fished for generations. Once brilliant, rushing streams now ooze dark and toxic.

Let's put a stop to this profitable but mean-spirited insult to our heritage and progeny. It benefits no one but stockholders.

Contact your representatives, tell them to support The Clean Water Protection Act (H.R. 1310) and The Appalachian Restoration Act (S. 696). Tell them to end this, now.

Here's news on the latest EPA action: Obama Mountaintop Coal Mining Plan Disappoints Appalachian Advocates

Enough carbon-free power for 25 million homes?

Geothermal offers enormous potential, especially for baseload generation, with minimal downside. We already have 3000 megawatts of geothermal capacity, and we could have 30,000 megawatts (enough for the aforementioned 25 million homes). What's stopping us? Bad public energy policy, especially lots of indirect subsidies for coal and nuclear that renewable sources never seem to get (due to an underfunded lobby), plus the fact that utility profits are tied to the volume of electricity sold, which only encourages the construction of more coal plants (the cheapest source of electricity as long coal mines and power plants can pollute for free), and discourages efficiency improvements.

Here's an enlightening report on the state of geothermal electricity production:

Geothermal, the 'undervalued' resource, sees surging interest

What if the "The American Clean Energy and Security Act of 2009" isn't enacted?

Your electric bill (and the price of everything else that requires electricity to manufacture) will still go up. Probably more than if it does pass.

Why? Because instead of investing in efficiency -- which could create lots of jobs for wage-earners -- investment will be in new capacity: coal and nuclear power plants and grid expansion. New capacity from big, central plants costs more than efficiency improvements or distributed renewable sources so your bill will go up. In fact, electricity gained by through efficiency improvements cost around $0.04 a KW/hr, as opposed to at least $0.18 for nukes (not including security or waste disposal) and around $0.10 for coal.

If we care about global warming and foolishly choose nukes over renewables, we will also discover that we can't build nukes fast enough to mitigate global warming -- they're just too complicated. And if we build nukes, it will be with taxpayer dollars to guarantee construction loans for projects notorious for cost overruns and delays. Otherwise banks won’t finance them.

Renewables, on the other hand, can be constructed faster and cheaper, and with far less resistance from neighbors (no one wants a nuke in their backyard).

Also, building coal and nuke plants won’t create as many jobs, nor will they last as long. Big coal and nuke plants are capital intensive -- they require fewer, but much more expensive components than distributed, renewable power sources or efficiency improvements like better appliances, construction materials, manufactured homes, etc. which can be produced by American workers for years.

On the other hand, we can make efficiency improvements and build wind, photovoltaic, biogas, geothermal and micropower (cogeneration) sources fast enough (using American products and labor if we’re smart). And, remember: distributed power sources for efficient loads are cheaper and more reliable than big nukes and coal -- not even taking into account the waste disposal and security costs for nuclear, or the environmental cleanup and health costs associated with all that mercury, radioactive isotopes, and particulates rained down by coal plants.

You want some dollar numbers?

Here's some from this blog: "Cap & Trade: Doing Well While Doing Good"

Here are some from the Union of Concerned Scientists, "Clean Energy, Green Jobs (2009)"
Read the following from an unimpeachable source, the Rocky Mountain Institute:

Does a Big Economy Need Big Power Plants? A Guest Post

Mighty Mice (funny title, concise, enlightening information)

The Nuclear Illusion (longish, but convincing)

Rocky Mountain Institute: Top Federal Energy Policy Goals
(what we would do if we were really smart...includes some job creation numbers)

And, here's a good explanation of how Carbon Cap & Trade will work (from Greenwire):
Carbon allowances -- the glue in House energy package

Renewable Electricity Standard (RES)(S.433 & H.R.890):
A Modest Proposal
To Join The Rest of the Planet In The 21st Century

The members of Congress who found the courage to introduce landmark energy bills such as The Renewable Electricity Standard (RES)(S.433 in the Senate and H.R.890 in the House) should be cheered. These are honorable initiatives to move this country into the realm of 21st century electricity generation technology, and away from toxic coal, of which we burn about 2.85 million short tons per day. (If you don't think that's a lot, watch the Frontline program "Heat.")

This bill would bring U.S. electricity generation from renewable sources (primarily wind and biomass gas) up to 25% of consumption by 2025. Given the state of technology, and plentiful wind resources, this isn't much of challenge. And it will only reduce coal consumption by 8 to 11 percent (depending on whether or not states get various exemptions). Further, additional costs to power plant operators imposed by this bill are minimized when combined with the effects of greenhouse gas cap & trade provisions of the American Clean Energy and Security Act (H.R. 2454) and a proposed energy efficiency resource standard.

What this bill will do is reduce growth of coal consumption, and the toxic side effects of it: mercury and radioactive isotopes in the air, leaching fly ash on the ground, and decapitated mountains in our verdant Appalachians. It will create solid, unionized manufacturing, installation and maintenance jobs that can't be outsourced. And, it will slow global warming -- not enough -- but it's a start.

And, it won't cost ratepayers much: somewhere between 2.7 and 2.9 percent tacked on to their monthly bills. (Yes, it's true, new power lines may need to be constructed from windy places to the consumers, but new coal plants, and the added power line capacity that goes with them will cost money, too. So, upgrading the grid is not an excuse for not doing this.)

Tell your representatives to support this bill (along with the American Clean Energy and Security Act), and tell your neighbors it's a good thing that won't cost 'em a bundle.

I got my numbers from the Energy Information Administration, in the Executive Summary of the report: Impacts of a 25-Percent Renewable Electricity Standard as Proposed in the American Clean Energy and Security Act Discussion Draft

Incidentally, you can search for any Congressional bill at the Thomas Library of Congress