April 17, 2006

KUFM / KGPR

T. M. Power

Globalization and the American Middle-Class Society?

America’s automobile industry is in trouble, again. Both Ford and General Motors are planning to lay off tens of thousands of workers and close dozens of automobile assembly and parts supply plants.

Because these are among the highest paid blue collar jobs in the nation, offering generous benefits packages including health insurance and retirement pensions, this industrial retrenchment simply confirms a de-industrialization trend that has been underway in this country for several decades. Many of the manufacturing jobs that disappear in the US from such industrial “restructuring” plans reappear in other countries as we purchase more and more of the manufactured goods we still demand from off-shore companies.

Economists have tended to shrug off this shifting of American manufacturing to lower wage countries as a normal adjustment to changes in this nation’s “comparative advantage.” Routine, less skilled, manufacturing jobs, economists argue, should shift to countries with less educated and skilled workforces. The American workforce can then turn to more skilled professional jobs in high tech, telecommunications, and high-end services such as medical, business, financial, and educational services. Such a shift in where Americans are employed will make better use of our rising levels of education. That will be a win-win result with both developing countries and the US gaining higher paying jobs than were previously available. In short, the shift from manufacturing to services will not hurt the American economy or American workers, at least not those who have upgraded their skills and education.

That seemed a plausible story until the high-tech bubble burst, laying off many of those highly educated workers. Then stories began to emerge about the off-shoring of more and more professional jobs. X-rays and MRIs are now often read in India or China. Computer technical support is largely being shifted overseas. More and more research and development also seems to be following manufacturing to off-shore sites.

India and China are the giants that are usually mentioned, but Taiwan, South Korea, Malaysia, Indonesia and other developing and developed countries, also have highly educated and highly motivated young populations that have flocked into the more difficult technical fields: engineering, science, mathematics, computer science, medicine, and economics. They are multi-lingual, hard-working, and disciplined. There are also tens of millions of them.

That creates the potential for a rapid expansion in the off-shoring of the very high-tech jobs around which economists believed America’s “new” post-industrial economy would be built. These Asian giants may soon be competing for both our manufacturing and high-tech service jobs. What then will be America’s “comparative advantage” and “economic base”? Will America’s well-educated workers experience the same economic free-fall that our less educated workers have experienced over the last three decades as they were forced to compete with low wage workers directly as a result of uncontrolled immigration and indirectly through the importation of goods from low wage countries?

That is not a prediction. It is possible that in fact it will not be that easy to export many high-tech service jobs because of quality control, the importance of “face time” in the provision of those services, cultural differences, and other factors. That happened to a certain extent with high-tech manufacturing during the 1980s as a lot of that manufacturing returned to the United States.

But there is a threat that has many economists who spent their careers advocating for “free trade” and, implicitly, globalization, rethinking that uncritical commitment to whatever international markets and international finance happens to give us.

Although the free-market ideologues among us would like us to forget our economic history, the wide-spread prosperity and majority middle-class society that emerged in the second half of the twentieth century was not a free market result. It was built around a whole series of public policies the assured both rapid growth in economic productivity and a wide sharing of those economic benefits among workers and families: Government protection of workers rights to organize and bargain collectively; government investment in higher education through the GI Bill and expansion of heavily subsidized public higher education; federal investment in high-tech industry including computers, aircraft, the internet.; the passage of relatively high and effective minimum wage laws; limitations on immigration; enforcement of over-time pay; regulation of vital sectors of the American economy including energy, telecommunications, and transportation. We were also initially protected from competition from other countries because of the damage done to most other economies by World War Two. “Free trade” at mid-century meant American-dominated trade.

The point is that the widely-shared prosperity that we Americans have prided ourselves on and offered to the world as a model was not built around unregulated global-scale trade, investment, and migration. Public policy guided and constrained market outcomes and the results were socially and economically positive.

We are now, of course, engaged in the opposite strategy: dismantling all of the public wage-setting institutions around which our original middle-class society was built. Instead we are now trusting our future to the world of unregulated international finance and a global economic free-for-all. That is a very dangerous gamble supported not by actual economic experience but by a quasi-religious ideological faith and short term financial greed.