Think Locally, Act Globally

“The church of global free trade, which rules American politics with infallible pretensions, may have finally met its Martin Luther,” writes William Greider in The Nation. I wasn't aware that free trade advocates had been selling plenary indulgences, but Luther in this case turns out to be retired IBM executive and current president of the Alfred P. Slone Foundation, Ralph Gomory. Gomory wrote in collaboration with economist William Baumol, a book entitled Global Trade and Conflicting National Interests some seven years ago. As Greider puts it, the “book languished in academic obscurity and until recently was ignored by Washington policy circles.” As C. Montgomery Burns might say with a view to the latest elections, “Recently, eh?”

I haven’t read the book, but the gist of Greider’s lengthy review is an approving belief in Gomory’s thesis that the rise of multinational corporations engaged in free trade on a global level has resulted in and will continue to result in a net real loss to the U.S. economy. “If nothing changes in how globalization currently works, Americans will be increasingly exposed to downward pressure on incomes and living standards.”

Lucky for us, Gomory has a solution which Greider reports as follows:

Gomory's vision of reformation actually goes beyond the trading system and America's economic deterioration. He wants to re-create an understanding of the corporation's obligations to society, the social perspective that flourished for a time in the last century but is now nearly extinct. The old idea was that the corporation is a trust, not only for shareholders but for the benefit of the country, the employees and the people who use the product. "That attitude was the attitude I grew up on in IBM," Gomory explains. "That's the way we thought--good for the country, good for the people, good for the shareholders--and I hope we will get back to it.... We should measure corporations by their impact on all their constituencies.

Should we, now? And if so, can’t one make a reasonably good case that the constituencies of a truly multinational corporation include the world’s population and not merely the home nation of its incorporation?

Greider trots out the usual snippets about how other nations both protect their own economies and lure U.S. corporations to outsource primarily manufacturing facilities and acknowledges that this constitutes a win for both the emerging nations’ economies and for the corporations. But, alas, “there is another effect beyond the benefits for those two parties--high-value-added jobs leave the U.S.”

Well, yes, if your idea of a high-value-added job is working on an assembly line in a semiconductor factory. Exactly how high paying such a job can be and for how long it will remain so is another matter. Yes, various Asian nations effectively took the electronics manufacturing market and a good chunk of the automobile manufacturing market away from the U.S. over the past two or three decades. And now as the standard of living and cost of labor have risen in those nations, they, themselves, are facing essentially the same phenomenon as those very same manufacturing operations are now beginning to be outsourced to other, less developed nations. Golly, imagine the third world actually having the opportunity to work and grow its way out of poverty. Why, somebody ought to do something about this!

And, sure, the U.S. continues to import more and more goods and services as more and more goods and services at lower prices (and sometimes higher quality) become available. As a result, ignoring for a moment the lost U.S. jobs this process necessarily also entails, we nonetheless all benefit as consumers. And, sure, such benefits accrue only so long as we do, in fact, have jobs and, what’s more, jobs paying enough to be able to afford those foreign bargains.

So what about those lost jobs? Greider says, “Free-trade believers insist US workers can defend themselves by getting better educated.” Well, yes and no. On the one hand, the days of a U.S. labor force in the manufacturing sector earning salaries commensurate with that of their parents and grandparents in the manufacturing sector is probably gone for good and it is unrealistic to expect that the remaining blue-collar work force will be able en masse to educate itself to a comparable earning level in a different sector.

On the other hand, just as we are on average vastly better off economically in this post-industrial economy than we were during America’s primarily agrarian economy, it is far more likely than not that our expanding economy will continue to create a new job market as well, and not only of the burger flipping variety. (For that matter, when, oh when, is someone going to build robots to replace the largely incompetent workforce in what, once upon a time, was called the fast food industry?) Refresh my memory, how many computer related jobs were there in the U.S. thirty years ago?

But, sure, the notion that everyone is a winner all of the time in a free market is absurd and, yes, the disparity between the per capita wealth and earning capacity of the U.S. and other Western nations vis a vis the rest of the world will eventually close in a global market. Yes, also, although that is primarily because such a global market will result in an expanding economy on a world-wide basis, it is also a function to some extent of supply and demand in the labor market – more people capable of performing factory jobs or, for that matter, computer programming or any other jobs capable of outsourcing will result in downward pressures on the price of such local labor.

Which gets to the nub of what is wrong with the notion that the U.S. needs a protectionist national policy. First, it won’t work, neither here nor anywhere else. Not, at least, in the long run; and, yes, while in the long run we may all be dead, our children and grandchildren will not. Second, national protectionist policy is simply local protectionist policy writ large. Read Greider’s article and replace in your mind every mention of the U.S. and foreign nations with, oh, say, Michigan and Georgia (as, indeed, the same sort of progressives as Greider not so long ago routinely did and sometimes still do) and ask yourself if interstate commerce has turned out to be nearly as disastrous as international commerce is now supposed to become? Ask yourself, also, just how much you would have to earn to be able to afford the vastly higher prices and lower quality and choices of a truly local economy by comparison to the market you enjoy today.

These are not, I think, questions Mr. Greider takes very seriously. But if a painless global economy is a fairy tale so is painless protectionism. And only in fairy tales do we all get to live happily ever after.