The Wealth of This Nation – Part II

I was disheartened to see Republican Don Evans say in a recent article that the main economic goal for Republicans in this next year was to boost consumer spending through tax cuts. Tax cuts are always good; will tax cuts alone, however, boost economic recovery and implement job creation?

Fat chance given the fact that consumers are going to be servicing the debt they ran up in the ’90s for years to come. Meanwhile, they face wage cuts or, if they are lucky and keep a job, their wages will remain flat.

Pensions and benefits are also in deep trouble. According to the Kaiser Family Foundation, the percentage of large firms offering health benefits to retirees fell from 66 percent in 1988 to 34 percent in 2002.

Depending on consumers to float the U.S. economic boat is whistling past the graveyard. It is symptomatic of the "Wal-Martinization" of America. Figures from the Federal Reserve indicate that household debt increased 66 percent, to $8.49 trillion, since 1995, while Wal-Mart makes and buys over half of its stock in China, having invested $200 billion in manufacturing plants and stores since 1995.

Household debt is going to put a damper on any boom fueled by Fred in Rockford or Duluth who might buy another made-in-China Motorola product at Best Buy. If Fred is an airline pilot or doctor, he has had to absorb up to a 35 percent wage cut in pay. Fred will probably be forced to use the tax cut to pay higher taxes and fees being imposed in states faced with a shortage of billions of dollars in tax revenues.

Bear with the numbers I am about to pass on, because they indicate something profound. These numbers point to a cataclysmic shift that went unnoticed during the credit bubble of the ’90s. That shift is finally catching up with the political and economic system in America. It is a shift that began in the ’60s and became an earthquake after the Cold War ended in the late ’80s and early ’90s.

The latest numbers on U.S. economic growth aren't good. The Gross National Product for the first quarter of 2003 grew by only 1.6 percent. Compare that to, oh, say, China’s, which has grown by 8 percent, or Russia’s, which is growing 4 percent to 6 percent per year. Consumer spending increased at 1.4 percent, and spending on services rose only 0.5 percent – the slowest pace in 12 years.

For the first time in 20 years, average pay levels are falling. According to a New York Times report, the top 10 percent of earners take home $1,439 per week – down 1.4 percent from a year ago. The guys in the middle and lower end of the pay scale lost ground too, with the median falling 1.5 percent year over year.

Meanwhile, the Federal Reserve created $6.9 billion in raw credit recently, to a new record high. Printing our way out of trouble is no way to handle a problem that is systemic.

I hate to be a crepe hanger, but the future isn't looking so hot – economically. Nor is the love affair between American interests as a nation-state and international or transnational capital/business.

Regarding the American economic sector? You have to stop and ask, is America's wealth really nothing more than a paper chase in the stock market? Are junk bonds, leveraged buyouts, mergers and acquisitions and derivatives in fact real wealth? Do these business practices create real wealth for the largest numbers of individuals?

Whatever happened to wages on the lower and middle end not being held down by the corporate need for wave after wave of cheap labor immigration? Why does no one recognize the difficulty in a service-based economy being nontransferable in trade with other countries? Whatever happened to making "stuff" to create wealth?

We lost low-tech manufacturing first to Japan, then to China, and now we are losing high-tech manufacturing as well. What kinds of jobs will most of us be doing in 2015?

Just this past year we also lost out to China as the largest receptor of foreign investment. China's growth is 8 percent per year. Ours is under 2 percent.

In addition, what kind of jobs do you think your kids or grandkids have to look forward to? A recent prognostication by the U.S. Department of Labor gives a clue or two. The fastest-growing job categories are food preparation and serving workers, customer service reps, registered nurses, retail sales (Wal-Mart again), waiters and waitresses, cashiers and warehousing, office workers, security guards and, somewhere near the bottom, computer software engineers and applications.

Meanwhile, really crucial high-tech blue collar jobs, white collar high-tech jobs and nuclear and computer technology are heading to China, Russia, Germany, France and God knows where else. Much of that technology was handed over or bought in free trade deals, which sold out American interests years ago.

Ironically, Japan, France, Russia, Germany and the Swiss are smart enough not to send their high-tech manufacturing to China – regardless of how cheap it is to make things.

At one time, high-end manufacturing jobs were the salvation of blue collar America. So were jobs in the engineering and aeronautics sector. Both have left the U.S. We have lost 1.6 million high-tech and engineering jobs overseas since 1990.

Altogether, the impact of "free trade" has given us a net loss of 3 million jobs while trade deficits hover around $400 billion year after year. More on that later.

What is going on, you ask? According to economist Robert Scott, barriers to U.S. exports (as well as overvaluation of the U.S. dollar) have contributed to these growing deficits, refuting the claim that NAFTA and the WTO would overcome such barriers. Instead, trade deficits have accelerated, with resulting job losses. Nearly two out of every three jobs lost (1.9 million out of 3.0 million) were in manufacturing.

Scott has diligently collected the data and gone over the U.S. Department of Labor figures, graphs and charts as well as those from various trade organizations. He tells us that the U.S. economy is in a world of hurt. One reason is that we forgot that the wealth of this nation is not in the stock market but in the jobs and innovations and "stuff" we create. That trade is not a panacea nor does it necessarily create jobs in the U.S.

The net impact of trade on employment is determined by the relationships between imports, exports and the domestic labor requirements for each type of good. An increase in exports creates demand for U.S. workers to produce those goods, while an increase in imports reduces demand for U.S. workers, either because imports displace already existing, comparable U.S. products, or because new demand is satisfied by foreign rather than domestic products.

Scott reports that gross U.S. exports increased 61.5 percent between 1994 and 2000. "Those increases were over-shadowed by the growth in imports, which rose 80.5 percent. As a result, the 1994 U.S. trade deficit of $182 billion increased 141.6 percent to $439 billion by 2000 (all figures are in inflation-adjusted 2000 dollars)."

While U.S. exports rose from $583 billion to $942 billion between 1994 and 2000, the net increase of $359 billion created 2.8 million jobs or job opportunities.

On the other hand, THE $616 BILLION RISE IN IMPORTS ELIMINATED 5.8 MILLION JOBS.

Thus the $257 billion increase in the trade deficit eliminated a net of 3.0 million jobs or job opportunities in this period. Furthermore, between 1994 and 2000, the U.S. lost more than 3 million jobs total and job opportunities equal to 2.3 percent of the labor force.

In a recent column, Paul Craig Roberts reminds free traders that what is happening is that U.S. firms may enter Chinese markets. However, "U.S. firms have access to Chinese markets and U.S. markets with products made by Chinese labor. In this ‘exchange,’ where lies the advantage for the U.S. economy?"

Indeed, where

Roberts concludes, “U.S. involvement in the China market for the next few decades will benefit transnational corporations. Eventually things will get better but the ‘eventually’ may be years and years in coming."

While China's basically nationalistic economy is growing at 8 percent a year, ours grew by 1.6 percent this past year. The only market that has opened up in China is the Chinese hunger for more foreign investment, technology and some American agricultural goods – those goods generally benefiting large corporate agriculture rather than the American family farm.

The Washington Post recently reported that it isn’t just manufacturing jobs headed out of the U.S. “A survey released by A.T. Kearney found that financial services companies plan to transfer 500,000 jobs, or 8 percent of total employment, to foreign countries such as India and China over the next five years.”

What does America get for all this cooperation between U.S. transnationals and countries like China, India, Russia and Mexico? We get a $400 billion trade deficit and an unemployment rate at 6 percent, probably more as those whose jobless benefits have run out or those who have quit looking for a job are not counted.

Meanwhile, the U.S. lost 95,000 manufacturing jobs in April 2003. Manufacturing makes up 14.1 percent of the American gross domestic product, the lowest it's been since World War II. That compares to 31 percent in Korea, 23 percent in Japan and 22 percent in Germany.

A study conducted by the respected Forrester Research Corporation declares that in the next few years the U.S. will see 3.3 million jobs going overseas and along with them $136 billion in wages.

It is certainly forcing thoughtful conservatives to question whether or not transnational corporatism and "free trade" need to be re-evaluated. Since the end of the Cold War, we must ask, are multinationals still benefiting the U.S. or do they harm our institutions and our strength as a nation-state? We must ask those questions; after all, rational self-interest is the capitalist way.

Regarding the transference of American jobs to China, not long ago Alan Tonelson, a Research Fellow at the U.S. Business & Industry Educational Foundation, attended a conference at the St. Regis hotel in D.C. The event, hosted by the Asia Society, was about China's information technology industries.

At the conference William T. Archey, president and CEO of the American Electronics Association (AEA), gave an indication about what the China trade-off has become. Tonelson recounts that Archey told the audience that the China trade "will pose one of the biggest public relations problems that the industry will face, in the sense of the export of jobs. "As long as the U.S. economy stays weak, Archey predicted, "Congress and others will be looking at 'Where did the jobs go.' "

Archey went on to say that the reason for investing in China has changed recently. The focus on selling to China's potential 1.3 billion consumers is now "secondary in importance. The reason to go to China is as a manufacturing platform for the rest of the world."

In other words, the main priority for U.S. transnational companies was no longer to supply Chinese customers with U.S.-made products – even in the long run. Rather, the top priority was in supplying world markets and the U.S. with Chinese workers in Chinese factories to make transnational corporations wealthy.

In fact, the big winners would be transnational corporations, not American workers, American industry, or U.S. economic or political interests. It amounts to this guy informing us that transnational companies owe no allegiance to the United States but are rather “of the world.”

Frankly, all this sounds like what the Father of Capitalism, Adam Smith, called mercantilism. It leads to a monopolistic one-world-fits-all state of being wherein various elites will demand that control be put into fewer and fewer hands and benefits be extended to fewer and fewer individuals.

Smith was a moral philosopher before he wrote “The Wealth of Nations.” He was also a patriot who loved his country, England. He slammed the mercantilists of his era, the trading companies such as the East India Company, the African Company and a half dozen others, for their actions and the impact they had on people and on England.

Smith’s exact words regarding the economic “invisible hand” is not the same hand that some free traders tell us it is. Smith stated: “By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”

In other words, by supporting DOMESTIC industry the capitalist aids his own security, and by directing trade to that end many good things happen on innumerable levels for the larger society. Good things happen even when the capitalist doesn’t mean for it to happen as he conducts business.

Smith also believed that the three most crucial aspects of capitalism, as it works in a nation-state, are the strength of agriculture, domestic industry and trade in the “finer things.”

Thus, a rational person might conclude that Smith was not a big fan of FOREIGN “free trade” or rather the modernist version of foreign trade. He probably would recognize that the current transnational corporate version of foreign trade is mostly going in one direction – often to the detriment of the United States.

In that regard, he wrote, "private persons frequently find it more for their advantage to employ their capitals in the most distant carrying trades of Asia and America, than in the improvement and cultivation of the most fertile fields in their own neighborhood.”

If we continue as we are, America will have traded it all, its comparative advantage and its sovereignty, to monopolies of the powerful on the left and the right. We will have chosen to trade America to those who have no regard for the people or the nation-state called America. If we accept this, America as a social and political entity will stop being free to act in its own political, social, religious or economic interest.

In fact, we will cease to exist as a free nation-state composed of individuals whose rights come from their Creator and not from NASDAQ, the New York Stock Exchange, Wal-Mart or the Fortune 500 – and certainly not from globalists who don’t give a tinker’s damn about us.

A hundred years ago that uniquely American aristocrat-cowboy President Teddy Roosevelt gave us some insight about the mercantilists/corporatists of his day.

That insight applies in our own times: “There are not a few men of means who have made the till their fatherland, and who are always ready to balance a temporary interruption of money-making, or a temporary financial and commercial disaster, against the self-sacrifice necessary in upholding the honor of the nation and the glory of the flag."

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To comment, write

Alan Tonelson, Research Fellow at the U.S. Business & Industry Educational Foundation

Hindustani Times

Jonathan Schlefer, The Atlantic

Boston Globe Sunday Edition

William R. Hawkins, Senior Fellow for National Security Studies at the U.S. Business and Industry Council

Washington Post

Forbes

Financial Times

Robert Locke

Adam Smith: “The Wealth of Nations”