Jobs! Jobs! Jobs! That’s all we hear from politicians these days in the run-up to the 2012 election. And we’ll hear a lot more. You may understandably wonder why so little has been done about jobs if jobs really are the most important issue in American politics today (they are). Expect a lot of bold talk until November. But don’t be surprised if, after the election, the usual silence returns. After the pre-election run up in employment inspired by pre-programmed government spending and goosed-up jobs data is over in November we’ll be left where we have been for years with still high unemployment and relatively low numbers of people in the labor force.
By far, President Barack Obama is the worker’s best hope in the short-term but he has been consistently wrong about what it will take to turn around the problem of our persistently high unemployment and declining middle class. I’m not saying that the President is deliberately misleading the nation; he may legitimately still believe that we will eventually pull ourselves out of the economic doldrums. Waiting out the “bad patch” of the Great Recession has been his tact for his first three years in office. (Without loud and consistent support from American workers his room for maneuver will continue to be small.) That “strategy” has worked before, at least in normal times. But we are not in normal times. We have never experienced anything like the mess we’re in now (at least since the Great Depression) and we seem to be lacking ideas about what to do about it except to hope for the best and that time heals all wounds.
The mainstream media is vociferous on the subject of jobs (Fox is understandably soft-pedaling the GOP’s weakness on jobs). In a current ad for the Dylan Ratigan Show on MSNBC he says, “The big issue—jobs. America has the money, we have the people, what we need to do is match people, ideas, and investments to create jobs and get millions of us back to work.” He’s promoting his “30 Million Jobs” tour. (His 30 million jobs estimate is based not on the government’s flawed calculation of the unemployed based on the recently unemployed but on a more accurate calculation which includes discouraged workers no longer looking for work.) Good luck with that Dylan (really) but you don’t stand a chance at creating jobs at that level. I wish it was that easy.
Ratigan’s “30 Million Jobs” series has toured the country interviewing various authors, Chamber of Commerce types, and “jobs entrepreneurs,” all with bright hopes for bold innovation in our approach to re-employing the millions of Americans out of work. Similar interviews could have been done last year or even several decades ago but our employment problems endure because bright faces and peppy, upbeat talk won’t hack it here. Our troubles are deeply rooted in the problems of a “mature,” rigid economy and the dilemma that capitalism has with full employment and workers generally. Capital wants consumers to buy their goods but don’t want to pay workers to produce them. We don’t want to admit a “reserved army of the unemployed” made up of former workers and the poor are exactly what Wall Street and the owners of industries need to keep workers compliant and wages down. We’ll need to take a much more serious look at our economic system, and the political system it has spawned, to see the way out of this mess. (Hats off to Dylan Ratigan, though. This is very dark stuff and anyone who sheds light on the dark corners of the American economy is to be congratulated.)
Dylan harps on the need for new investment but we have gone that route already and it spectacularly failed. From 2001 through 2010, the Bush tax cuts added $2.6 trillion to the public debt. Most of this public largesse went to the private sector for investment that Bush promised would lead to a new land of milk and plenty. But our tax generosity to the 1% resulted in many more jobs being created overseas than in this country. For example, GE reports the company has cut some 25,000 jobs in the U.S. since 2001 but added 2,000 foreign jobs. In the last decade, U.S.-based multinational corporations slashed nearly 864,000 jobs in the United States but they added 2.87 million jobs outside the country (U.S. Bureau of Economic Analysis). The dirty truth is that private investment capital is mobile across borders which means money will go where it will receive the highest return. Patriotism doesn’t enter into it.
What the American public got from the Bush tax cuts for the wealthy was continued disinvestment in America. Trillions down a rat hole as the Great Recession and meltdown of our economy decisively proved. Ratigan’s “culture of investment” story is the standard presidential pitch—the same as Reagan’s, both Bush’s, Clinton’s, and Obama’s—that we just need to work hard, invest in America, and all will be well. That hasn’t been working for a long time yet presidents persist in making the same speech and we persist in believing the same comforting myths. Wall Street and the 1% are only too glad to continue to accept big tax cuts as long as we elect people who will legislate them into law.
Every president tries to do his version of the “vision thing” with the State of the Union speech. George Bush thought we should go to Mars. Newt Gingrich wants to go back to the Moon. (I think he’s right. We should send him.) Obama’s vision thing is very similar to other presidents including Reagan and Bush: America is superior among the world’s nations, we are world-beater competitors, more innovative, smarter, more everything good. But what we didn’t hear from Obama was a truly realistic assessment of what we need to do to counter the sustained decline of America’s middle class and the persistently rising unemployment that has plagued this county for 40 years now. Exhortations won’t cut it anymore.
Obama’s State of the Union (SOTU) speech last month illustrated the problem of potentially progressive leadership in an extremely adverse economic and political environment. In an election year with a dismal economy and high unemployment the president wants to make the case that America is getting back to work. His speech, perhaps his best so far, seems to deal forthrightly with the problems facing our nation. The centerpiece of his argument is that we are on the leading edge of a renaissance in manufacturing. The mainstream media is picking up on this theme, not so much as to get the president re-elected, but to bolster their ratings with optimistic themes that attract a wide audience. However, there is more than ample evidence to suggest that when the election is over our problems with the economy, manufacturing, and unemployment will still be with us. Below I will quote from his 2011 and 2012 SOTUs (with comments in parentheses):
“This blueprint (of an economy built to last) begins with American manufacturing.” (This statement is at the heart of the President’s plan to revitalize American industry and the economy.)
“The rules have changed. In a single generation, revolutions in technology have transformed the way we live, work and do business. Steel mills that once needed 1,000 workers can now do the same work with 100. Today, just about any company can set up shop, hire workers, and sell their products wherever there’s an Internet connection.” (He’s right. The economic impacts of productivity improvements and global trade are at the center of the changes that have led to stagnating wages and persistently high unemployment.)
“America still has the largest, most prosperous economy in the world. No workers--no worker--are more productive than ours.” (True enough but chiefly because of our use of labor-saving machines which have side-lined millions of blue-collar workers and sharply limited their access to a decent standard of living. Now, white-collar workers will be next to go.)
“The first step in winning the future is encouraging American innovation. None of us can predict with certainty what the next big industry will be or where the new jobs will come from. Thirty years ago, we couldn’t know that something called the Internet would lead to an economic revolution.” (The next tech revolution is probably not around the corner. The Internet came into existence almost 40 years ago and the fact it’s still cited as the best example of American innovation is a testimonial to how difficult it is to come up with the “next big thing”.)
“Long before the recession, jobs and manufacturing began leaving our shores. Technology made businesses more efficient, but also made some jobs obsolete.” (America’s furloughed factory workers already know about this.)
“We can’t bring every job back that’s left our shore. But right now, it’s getting more expensive to do business in places like China. Meanwhile, America is more productive.” (He’s right about not getting every job back, or even many of them. The price of labor in China can increase ten-fold and still be below our wages. America is more productive because of deepening automation which replaces workers.)
“No American company should be able to avoid paying its fair share of taxes by moving jobs and profits overseas.” (Jeffrey Immelt, the CEO of GE and former head of the President’s Council on Jobs and Competitiveness, leads a company with most of its workers employed in foreign countries. A company that makes 82 percent of its profits abroad and has paid no U.S. taxes in the several years. Employing Immelt was a desperate attempt to win the confidence of American business. The President should worry more about keeping the confidence of the American worker.)
I sincerely hope the President is right about all this but I seriously doubt it. I hope the U.S. can benefit from innovation and sophisticated trade policies and that middle and working class standards of living can be maintained and even raised under current policies. But American workers cannot continue to accept the assurances of national leadership which have proven to be false for the last 40 years. We need better ideas and more effective leadership.
In his SOTU addresses the President stressed manufacturing, small business, and our ability to trade in global markets but these strategies not get us American workers where we need to be. In this diary I’ll explain some of the reasons why. In a future diary I’ll suggest some ways--some old, some new—about how we might get there.
MANUFACTURING WON’T SAVE US
From the public’s point of view, manufacturing is an ideal industry. It employs both highly educated white-collar workers as managers and engineers and less well-educated blue-collar workers on the factory floor and in support positions. The sales of the products of manufacturing are evenly distributed (via wages) across the income spectrum; not concentrated in the hands of a few such as with the financial industry.
In this year’s SOTU President Obama sought to reassure those of us who can still remember a strong American economy built on manufacturing. He wanted to send a message that the old days can return but CHART 1 shows very consistent opposing trends in manufacturing sales and jobs for the past 40 years. This long-term trend will not be easily reversed by presidential decree, especially considering that global competition in manufacturing is picking up speed, not abating. The chart is very bad news for any worker who might hope manufacturing will come to the rescue to the U.S. economy as the president imagines.
As the chart shows, since 1972 manufacturing output (sales) has more than doubled while employment in the sector has decreased by 34%. While these American job losses are sobering, they are not an indication of declining U.S. competitiveness. In fact, these statistics reveal that the average American manufacturer is over three times more productive today than they were in 1972--a sure sign of some sort of economic progress, at least for owners. But those gains in productivity have substantially come from removing large numbers of workers from the factory floor and replacing them with machines. The U.S. may indeed recapture some, or even all, of its lost manufacturing sales but this is of little consequence to workers who have lost their jobs due to automation. Sales are important to Wall Street and the owners of industries but to workers jobs are everything. Listen carefully to politicians when they tell you we can be world leaders in this or that industrial sector. Beyond possible national bragging rights, that means little to American workers.
So, President Obama may be right, at least if he’s referring to expanding our manufacturing sales. We may be able to “re-shore”—bring back some manufacturing to the U.S.—but that does not mean that manufacturing employment will return. The dirty truth is that it won’t. Limited re-shoring may occur with firms returning to be close to domestic markets but most won’t return because much lower labor costs in foreign nations are why they left in the first place. America’s competitive advantage is that we may retain the engineering design of some products which is good for some professional white-collar workers but there’s really no reason for large numbers of factory flor jobs--our bedrock for blue-collar life for decades--to return to our shores.
CHART 1 strongly suggests that that if the trends of the past 40 years persist, then American manufacturing employment will continue to decline. But some promoters of U.S. manufacturing—politicians assuaging our economic concerns, industry spokespeople huckstering their wares, and our always-placating media--have noted that our productivity levels are greater than those of China and other low-cost producers in the world. In a literal sense, they’re telling the truth but here the truth is very misleading.
The reason is that automation—the real secret behind high productivity, not workers--has proceeded much further here than in China. Our advantage in productivity will vanish once China’s factories automate to the degree U.S. factories have already. Two decades ago, America’s factories were forced to automate just to try to keep up with China’s low labor costs. China had the cheap labor advantage while we had the automation advantage. Now China is investing in the same factory automation so, all things being equal, China will keep its low-cost edge for years to come because their workers will hustle for much lower wages compared to U.S. workers.
We hear plenty of feel-good stories about the comeback of American manufacturing which focus on once-closed factories now re-opening with high hopes for the future. Not to worry they say in reassuring tones. Workers, worry!
What TV doesn’t tell you is that while Chinese labor costs are increasing they will never converge to U.S. levels and, if they did, our workers would be living at the same standard of living as the Chinese. Understand that Chinese workers are coming from a history of extremely low wages and widespread poverty. Know also that the affluent lifestyles of some of the Chinese middle class that we see on TV are not at all representative of the standard of living experienced by most Chinese workers. To the Chinese the rising wages they currently enjoy are a far cry from the old days but are still well below the current wage experience of American workers.
As noted, productivity is mainly determined by the level of automation employed in the productive process. But worker wages are only a small part of the cost of most products so it’s the level of automation that sets the prices consumers pay. Once the Chinese catch up with the U.S. in terms of automation, substantial differences due to wages will still be there and their manufactured products will still be cheaper and more competitive in world markets. If not, it will be because American wages have sunk to Chinese wage levels (or Chinese wages levels have risen but that’s not likely given their more authoritarian government). Most American workers would find that intolerable. What Americans are accustomed to in terms of our standard of living would have to be downscaled drastically—smaller and fewer houses, more apartments, more crowding, fewer cars, cheaper food, and so on. Some would argue that these are changes we should be making anyway but nobody likes these changes forced on them especially if we can’t improve other areas of our lives such as more leisure or vacation time.
The economic meltdown of 2008 and the ensuing high unemployment continue to undermine the confidence of the American people in the ability of the president, and Democrats generally, to effectively manage the American economy. Any ray of hope, such as resurgence in manufacturing, sends a reassuring message to the public that our government is being competently run. No matter what doubts the President has in private his message to the American people will be a positive one. Let’s hope the current administration can navigate the country out of these turbulent waters but the tide is strongly against him, or anyone for that matter.
But if the Democratic vision of solutions to the problems facing the American workers falls short, perhaps the Republicans can do better. (Put aside for the moment the fact that Republicans got us in the mess we’re in.)
President Obama’s prescription for the economic recovery of manufacturing is a part of a rehash of old approaches that have been proven not to work. Not to be outdone, Mitch Daniels, the former Bush budget director who is still mentioned as a presidential candidate even though he declined to enter the race months ago, delivered the Republican rebuttal to the President’s State of the Union speech. He accurately credits Apple’s former CEO Steve Jobs as a job creator par excellence. The only problem is where these jobs have been created: China and not the U.S. As a recent article in the NYT details, Apple employs about 43,000 workers in the U.S. compared to China where they employ about 700,000 workers directly and through suppliers. Tens of thousands of workers in an American economy that needs over ten millions is just a small drop in the bucket. We need lots of good jobs here, not there.
Did Mr. Daniels knowingly mislead listeners to his speech? Possibly not, he’s just a politician dependent on the advice of people who are supposed to know better. For whatever reason, Daniels repeats the politically comforting story that America’s entrepreneurs can save us all (at least if freed from the “shackles” of government regulation). For both Democrats and Republicans, this convenient myth goes down well with a public that desperately wants things to get better. Unfortunately, worn-out ideas that did not work in the past are not going to work now. We urgently need some new thinking on the subject of jobs.
SMALL BUSINESSES WON’T SAVE US
In his SOTU speech, President Obama also claims that small businesses are the key to alleviating the joblessness that permeates our economy. Specifically, he stated that “Most new jobs are created in start-ups and small businesses.” He wants to “expand tax relief to small businesses that are raising wages and creating good jobs.” Both parties generally agree on these ideas.
Small businesses create more jobs than large ones, or at least that’s what we are led to believe by the politicians. While true on its face, the claim is deliberately misleading at best and outright false at the worst. A common claim by policymakers is that small businesses create two-thirds or more of net new jobs. Every president since President Reagan has included such statements in major addresses. The reality is much different.
What really counts is not the number of jobs created but the net number of jobs created: the difference in jobs created and jobs destroyed. The net jobs created by small business is relatively modest and even that claim is subject to dispute among economists for technical reasons.
In a recent paper by the Saint Louis Federal Reserve Bank, researchers found that businesses with 1-19 employees accounted for only 15.0% of average jobs gains between 1992 and 2010. Businesses with 20-99 workers were found to account for 23.6%, 100-499 workers for 23.4%, and 500 or more workers an astonishing 37.9% of all job gains. (The government says a business is small if it employs as many as 500 workers, a very large number by most people’s reckoning.) Worse yet, fringe benefits—health insurance, paid vacations and sick leave, even decent working conditions—are much less common among small firms than large ones. Big firms make more of the “good” jobs we hear so much about.
This picture is much different than that painted by politicians selling the Great American Myth of small business job creation. Why are we so often told this story? Not only does the myth take the heat off Big Business to create jobs but in a world where workers have less and less control over their world, the idea that Mr. Jones down the street, the owner of the local hardware store, is a job creator is comforting because the solution seems local and not in the hands of a faceless Wall Street bureaucrat (most bureaucrats don’t work for the government).
Young firms are more volatile and exhibit higher rates of gross job creation and destruction. Recent findings show that, contrary to conventional wisdom, small, mature firms (ten years of operation and with 50 or fewer employees) may actually be slowing job growth. In fact there is no systematic relationship between firm size and growth. The key is how old a business is, not its size, and public policy looking at size is likely to offer false hope to workers looking for a solution to persistently high unemployment.
Most small firms start small, stay small, and close just a few years after opening. Why are many small firms so ephemeral? There are many reasons including the lack of access to capital funding for operations and expansion but the biggest reason is that small businesses are often run by relatively inexperienced people who are poor managers. This uncomfortable thought may be offensive to many but just look around you. Not just the successes which are played up with great fanfare—presidential visits and air play on the evening news for some--but the risk-taking small businesspeople who lose their homes which they had mortgaged to the hilt to pursue their dream of financial and personal independence from the corporate world. While they’re open for business we should buy their goods and services and if they should fail we owe those former owners our enduring respect.
FOREIGN TRADE WON’T SAVE US
In both the 2011 and 2012 SOTUs the President was adamant that foreign trade would be a major emphasis of his administration:
“To help businesses sell more products abroad, we set a goal of doubling our exports by 2014--because the more we export, the more jobs we create at home. Already, our exports are up. Recently, we signed agreements with India and China that will support more than 250,000 jobs in the United States. And last month, we finalized a trade agreement with South Korea that will support at least 70,000 American jobs. This agreement has unprecedented support from business and labor; Democrats and Republicans, and I ask this Congress to pass it as soon as possible.”
“We’re also making it easier for American businesses to sell products all over the world. Two years ago, I set a goal of doubling U.S. exports over five years. With the bipartisan trade agreements we signed into law, we’re on track to meet that goal ahead of schedule. And soon, there will be millions of new customers for American goods in Panama, Colombia, and South Korea. Soon, there will be new cars on the streets of Seoul imported from Detroit, and Toledo, and Chicago.”
The well-known criticism of free trade agreements is that some American workers lose their jobs when we buy cheaper goods from Mexico or China. True enough and much has been written about this terrible effect from trade agreements. Our textile industry in the South has been decimated by cheaper clothes from Taiwan and China and Detroit was laid waste in large part due to strong competition from Japan and Korea.
Contrary to the politician’s hype, free trade has not been a great boon to the employees of U.S. exporters. The reality has never lived up to the politician’s glowing descriptions of a huge torrent of goods flowing from us to foreign countries. The employment impacts in this country have never equaled what Presidents have promised to gain popular support for trade legislation. It’s has been this way for many years now and, beyond empty promises, there’s no reason to expect it will change. Our trade deficit (what other countries buy from us minus what we buy from them) strongly favors them, not us, and it’s not all oil either.
Overall, the U.S. is a net exporter of services. In 2010 the U.S. had a trade deficit of $646 billion in goods, including manufactured products, but a surplus of $146 billion in services. This is an incredible half a trillion dollars flowing from this country but the real tragedy for workers was that this largely came out of the hide of the nation’s manufacturing and other goods producers. The providers of services, especially financial services, came out way on the positive side. In 2009 financial services exports totaled $230 billion! This is essentially an income transfer from American goods-producers to American service-producers featuring the financial services industry. Who’s trade good for? The answer should give you a clue about one reason why the U.S. keeps signing trade agreements.
If the terrible effects of these trade agreements are so well known then why do we continue to negotiate and pass them into law? Why do even Democratic presidents seem to never get their fill of these agreements which have harmed so many American factory workers and their families?
The answer is simple. We like the cheap imports. Not just consumers but the politicians, too. The average annual income of a family shopping at Walmart is $35,000. Shopping at Walmart saves that family over $800 a year. Cheap gasoline saves even more. There you have it in a nutshell. That’s like a 2.3% pay raise to Walmart shoppers which means a lot to workers who have been hammered by stagnant or declining wages for years. It also means a lot to politicians who have not delivered a better life to workers by any other means. Walmart, and free trade generally, leaves politicians with less to explain to the workers who have suffered the most at the bottom of the economic heap.
What about all those workers who lost their jobs to free trade? Well, they don’t vote anyway think the politicians of both parties. The long-term unemployed former manufacturing workers, and the poor generally, are so discouraged in their downbound trip to the edges of American life they are despondent and completely out of touch with the political process. The people who need most to vote against this madness are the very ones that don’t. An old story, unfortunately.
Politicians promise that we will turn around our balance of trade problem but they don’t mean a word of it. They are as addicted to importing low-cost goods as much as most Americans, only in a different way. The high cost of this inaction has been the steep decline of U.S. manufacturing and our inability to develop alternative energy sources and the fundamentals are not about to change.
THE DEMOCRATIC PROMISE TO AMERICA
In his SOTU speeches President Obama forcefully described economic revitalization strategies based on a renewed emphasis on manufacturing, small business, and foreign trade. This diary has argued these are plans built on old sand. Political expediency--the appeal of old, non-challenging ideas to both voters and the elites--has won out over any new ideas which might threaten the status quo. He expects to be re-elected with the familiar promises Americans have heard for years but have never worked as presidents said they would. We live with that legacy of unfulfilled promises.
In President Obama’s 2011 SOTU he stated that “We measure progress by the success of our people. By the jobs they can find and the quality of life those jobs offer. By the opportunities for a better life that we pass on to our children.” In his 2012 SOTU he said that “the basic American promise that if you worked hard, you could do well enough to raise a family, own a home, send your kids to college, and put a little away for retirement. The defining issue of our time is how to keep that promise alive.” He nailed it.
The disjuncture between lofty promises and reality has never before been so abrupt and the consequences so threatening to the American quality of life as today. The President’s eloquence is unmatched but does not directly address the difficulty of the challenges before us. Nor does he mark a new way forward. This lack of fresh ideas exposes the apparent intractability of the problems we face.
Unemployment is an emergency for those experiencing it but, for the time being, most people remain comfortable in their feathered nests. Nothing works against progressive social change like a mostly comfortable public. The potential for social change in the current environment is there now precisely because so many people are currently uncomfortable. Let’s make the most of this before we become thoroughly accustomed to the dreadful “new normal” of lowered life expectations for us and our children.
Today the issue is our very standard of living. Doing something about the problem requires a thorough rethink about our capital-intensive economy and our approach to global trade. Doing something also means going up against the most reactively powerful forces in the country and all the assets they have at their disposal including the media and legal system.
But national leadership, especially Democratic leadership, should be obligated to tackle the “wicked” big socio-economic problems by all means necessary. It’s not solely the private sector’s job and we should not expect them to do it alone. The private sector is an important part of any solution but only as one player among several—labor, capital, and the government. We should expect Big Business to help where they can by being a good faith team player and to get out of the way when they can’t.
Confronting the national powers-that-be is a risky strategy. The plain and simple truth is that business interests in America are so powerful that no meaningful national conversation about persistently high joblessness has been possible since the Great Depression of the 1930s. Government has been able to make a difference but only around the edges—unemployment insurance benefits, government funded job training programs, welfare, child food and insurance programs—by not seriously challenging the economic elites. Any president that would attempt to do so, and this includes Barack Obama, would be relentlessly hounded by the corporate media and effectively driven from office. (Bill Clinton is one example and his modest goal was improved health care.) No truly progressive executive agenda, even a limited one, would escape constant criticism to the extent than even many friends of an administration would turn against them. Courage in prodigious quantities (balls of steel) would be required.
The job of being president of the United States is like riding a bucking bronco 24/7. This rambunctious, anti-social country is a tough one to manage. Like the old saying about “trying to herd cats,” the lack of clear lines of authority in the country makes it very difficult to unify us except for a war (fear is a powerful motivator; be very afraid). However, President Obama cannot escape the responsibility of leadership. In his second and last term he should be willing to go to the wall for the American worker. No less is demanded, no less is expected. This diary is a challenge to President Obama to keep the promises he has made.