Manufacturing Employment in Historical Perspective: The 27% Manufacturing Labor Force of the Great Society Would Be Gone No Matter What
Over at Equitable Growth: The extremely-sharp Dean Baker writes:
E.J. Dionne and Harold Meyerson... interesting columns... suffer from the same major error.... The loss of manufacturing jobs and downward pressure on the wages of non-college educated workers... as... the result of a natural process of globalization. This is wrong. The downward pressure on wages was the deliberate outcome of government policies designed to put U.S. manufacturing workers in direct competition with low-paid workers in the developing world. This was a conscious choice. Our trade deals could have been designed to put our doctors and lawyers in direct competition with much lower paid professionals in the developing world. READ MOAR
Trade deals could have focused on developing clear standards that would allow students in Mexico, India, and China to train to U.S. levels and then practice as professionals in the United States on the same terms as someone born in New York or Kansas. This would have provided enormous savings to consumers in the form of lower health care costs, legal fees, and professional services more generally. The argument for free trade in professional services is exactly the same as the argument for free trade in manufactured goods.
The big difference is that doctors and lawyers have much more power than autoworkers and textile workers, therefore the politicians won't consider subjecting them to international competition. However that is no reason for columnists not to talk about this fact. More generally, the heavy hand of government is all over the upward redistribution of the last three and a half decades.... Inequality, like the path of globalization, is not something that happened. It was and is the result of conscious policy. We won't be able to deal with it effectively until we acknowledge this simple fact.
And I want to say: Yes, but...
Yes, we could have focused on opening-up the professions to competition from foreigners. But that isn't really a trade thing: we have given, give, and will continue to give the AMA and the ABA mighty power to protect their members' earnings from competition from American nurse-practitioners and paralegals.
Yes, globalization was a policy rather than on inevitability.
Yes, we could have kept tariffs and nontariff barriers high, thus choked off international trade, and kept manufacturing employment and manufacturing wages higher via supply and demand. In fact, we could have done that by means other than restricting global trae:
We could have lowered trade barriers but also shaped our policies to have induced us to consume less and invest more abroad. The counterpart to that investment abroad would have been extra manufacturing employment at home, over and above what was sufficient for domestic needs plus balanced trade.
We could have specialized less in selling political risk insurance to the rich of the world. We could have specialized less in selling grossly overpriced asset management services and liquidity permission services to the rest of the world.
We could have invested much more in subsidizing, and thus preserving and growing, our sociologically valuable communities of engineering practice.
The last of these would have led to a richer, a less unequal, a more prosperous, and a happier America.
The others--including keeping trade barriers higher--would have led to a poorer but a more equal, and might have led to a happier and on some measures a more prosperous America.
But there are also substantial long run benefits to the opening-up of trade--even if our political system was no more able to push for market access for Indian lawyers than for New York paralegals. The first is the creation of a more peaceful and more prosperous world that follows from America's willingness, in the post-World War II era, to serve as importer of last resort for poor economy is hoping to succeed in manufacturing export-led growth. And there are national security benefits to binding the elites of other countries to America, via our use of Wall Street to gain control over their money.
Moreover the overwhelming bulk of the decline in the manufacturing share of America's workforce would have happened even had there been no manufacturing trade deficit but rather a manufacturing trade surplus:
From 38% in 1943 to 8% in 2015, the manufacturing share of the workforce has declined inevitably and inexorably. Policies to guarantee balanced manufacturing trade might have pushed that 8% up to 10% today. Policies to guarantee a substantial manufacturing export surplus might have pushed that 8% up to 11% today. But the 27% of the American labor force in manufacturing, largely unionized, that we saw in the days of the Great Society would be gone no matter what.
And, of course, had the political will been there--and, yes, I am looking at you, Reagan Democrats of McComb County--it would have been child's play to stab list and maintain a more robust social insurance and social welfare system to offset the adverse distributional effects of globalization.