Status Updates From The Betrayal of American Pr...

Similarly, in 1995, Ford Motor Company CEO Alex Trotman said: “Ford isn’t even an American company, strictly speaking. We’re global. We’re investing all over the world. Our managers are multinational. We teach them to think and act globally.” In 2006, Cisco CEO John Chambers went even further in saying: “What we are trying to do is outline an entire strategy of becoming a Chinese company.”

The Economic Policy Institute reckons that the annual earnings of all workers without a college degree (the vast bulk of the workforce) are $1,400 less than they would have been without globalization. University of Maryland economist Peter Morici argues that globalization has cost the United States $1.5 trillion over the past ten years.

No one knows, in fact, what the full impact of globalization has been on the United States over the past sixty years, as there has been no truly comprehensive analysis. But a good case can be made that the gains have not been great and that there may well have been a net loss.

But the biggest things are economies of scale and relative worker productivity. Major import penetration of the U.S. market means foreign producers are gaining economies of scale and the worker productivity that goes with them while U.S.-based producers are losing both. Since relative productivity largely, determines wages, this kind of shift means downward pressure on wages.

Not surprisingly, the offshoring of U.S.-based production accelerated greatly as a flood of American companies opened up shop in China, and U.S. manufacturing fell to about 11 percent of GDP. Consequently, the trade (current account) deficit ballooned to $696 billion, or nearly 7 percent of GDP.

But the U.S. Census Bureau reported that, on average, in normal years 52 percent of job losers who are eventually reemployed take a substantial pay cut. Indeed, McKinsey itself had done another study in 2003 which showed that only 36 percent of those displaced got new jobs at equal pay, while 25 percent took pay cuts of as much as 30 percent.

The result of these developments has been the current hybrid global economic structure in which the world is half free trade and half neomercantilist. This flat world is tilted so as to slide production and provision of tradable goods and services and the jobs attached to them away from the economies of economic orthodoxy to those of neomercantilism.

Americans had been reassured over and over that their economy was moving to “higher ground,” where there would be better jobs in sophisticated services, design, investment banking, high technology, and R&D. That comforting mantra now began to sound a bit hollow as GE, IBM, and a host of others outsourced more and ‘more of this kind of higher-level work to Asia.

According to the efficient-market theory, this whole experience should not have happened. Indeed, by definition, bubbles could not occur under the theory because the market price is always correct and instantly adjusts correctly to new information. The sudden deflation suggested missed signals or irrational expectations. This was one of the first signs of possible flaws in the theory.

Institutionally, substantively, and structurally, the WTO revolutionized both the concept and the administration of the world economy. Of the two key new elements, the most important was compulsory dispute settlement—a term that sounds like bureaucratese, but is a requirement that essentially cut the United States off at the knees and made the WTO perhaps the most powerful international governing body.

Although the negotiations were declared a great success, most of the issues were left unresolved. Eventually a number of U.S. chip makers closed up shop, and more than 100,000 Silicon Valley workers lost their jobs. Even more significant, the United States lost technological leadership in production of several important kinds of semiconductor.

While access to the Japanese market continued to be limited and patent and copyright protection difficult to assure, Japanese producers were, with government backing, aggressively dumping chips in the U.S. market and had attained a more than 60 percent share.

Most families had one breadwinner whose earnings easily supported a rising middle-class lifestyle. And despite the emphasis on consumption, savings still accounted for 9 percent of disposable household income, household debt was 12.4 percent, and the federal budget deficit was $14 billion.

Manufacturing was the driving force of this U.S. wealth creation, accounting for 22 percent of GDP, 22.3 percent of employment, and most of productivity growth. The big industrial companies were mostly unionized, and union members comprised 25 percent of the workforce.

In a world of unregulated free trade, American CEOs, like their British predecessors in the nineteenth century, were convinced they could not fail to win every time. Similarly, American labor also thought it would be a big winner because it was far and away the world’s most productive workforce. Thus by 1950, after nearly a century and a half, Alexander Hamilton was out, and Adam Smith and David Ricardo were in.

But the primary economic concern now was to avoid sliding back into depression as wartime spending wound down and 15 million service men and women were demobilized and sent home. This triggered the most consequential of all America’s postwar policies—the decision to vigorously promote domestic consumption as the engine of the economy’s growth.

As America in the postwar world adopted new international priorities, it no longer felt there was any reason to worry about its economic competitiveness. Indeed, as it exercised its new preeminence in the context of global responsibility, America made a momentous aboutface, morphing from being the world’s leading “catch-up,” mercantilist nation into its leading apostle of free trade.

The structure of today global economy with its chronic trade imbalances, it tendency toward financial crises its asymmetric economic growth policies, and it continuous lowgrade economic conflict was largely determined by the asymmetry between Americas fixation on geopolitics and laissezfaire free trade and the neomercantilist emphasis of the leading countries of Europe and Asia on catching up and becoming competitive

Not only did the domestic prices of American producers decline rapidly, but their exports soared as they undercut the prices of the higher-cost British producers. From 1875 onward, the United States had a trade surplus driven by rising exports of manufactures, and between 1870 and 1913, U.S. exports grew at a compound annual rate of 4.9 percent while those of Britain managed only 2.8 percent.

In fact, as they rapidly improved quality and exploited the potential for economies of scale, American manufacturers were becoming the world’s low-cost producers even as they paid the highest wages, and American consumers were enjoying the lowest relative prices.

It had been argued in the old tariff debates that protection of infant U.S. manufacturers with initially higher costs than foreign producers would impose higher prices on consumers and inhibit the growth of the American economy.

Fantastic reading, disturbing concept, scary conclusions. I'm going to read some fiction to erase the feeling of hopelessness that the book brings!

Slightly depressing, but intriguing comparison of current US policy versus Great Britain in the late 18th century. The author has personally witnessed many of the recent events leading to a compelling conclusion about American Free Trade Policy. According to the author, every president since Herbert Hoover have made huge errors in following the bogus assumptions of free trade morons and their bogus pseudo-science.

I've had to put this one on hold to take care of some other projects. But the historical perspective is certainly thought provoking.