I wrote: > > > And manufacturing (which generally led the US economy out of past > > > recessions) has shrunk by half to only about 10% of the US economy, > > > while finance has more than doubled to over 20% in the last 25 years > > > (the figures are from Phillips' "Bad Money"). > > > > > And now you want more free trade as the solution? Is this a joke? >
And John G. responded: > > It seems to me that opposition to free trade has been a disservice to > > US manufacturers: such protection (ism) is the reason why so many > > industries -- emblematically automobiles -- are hopelessly outdated > > and unable to compete. > > > > The same opposition held Indian manufacturing back for decades. > > > > And, even in the current economic crisis, intervention in favour of > > British manufacturing is supported by very few, > > > > Produce something the world wants -- and that addresses such issues > > as climate change -- and the deficit might magically evaporate. > And Alan wrote: > I heartily agree with John G. The solution to the trade deficit problem is > to improve the competitiveness of industries, not protectionism. Taking the > automotive industry as an example, US automakers have interestingly done > very well in automobile sales outside of the US, so they have improved the > trade deficit problem in that regard. The converse of the coin is that US > branded cars are not doing well in the US, leading to the current crisis. > Big issues on the table here. One key reason why the US automobile manufacturers are competitive overseas (and this is certainly not true of some markets, like Japan, for instance) is that the plant and equipment they have overseas were built fairly recently. Much of the plant and equipment in the US is out-of-date, and cannot be modernized at an acceptable cost, and management is also loath to invest the money when factories can be built in foreign countries like Mexico and Brazil and operated at much lower cost. Much of the aging US auto industry base has been shut down at this point; more of it is going to be closed as part of the current crisis. It is not at all clear that a bailout of the auto industry will in fact lead to the necessary solution, namely the building of new state of the art plant and equipment in the US, and this is a source of considerable concern in DC. This relates to a more general point that has been made for example by Thomas McGraw in his comparison of the Japanese and US steel industries in the edited volume "America Vs. Japan": Much of the US' industrial plant was aged by the 1970s. Modernizing it would have involved massive investments. Instead, American manufacturers in industries like steel and autos built factories overseas, or in some cases diversified away from their original core product (e.g., US Steel became USX). Second, I question John Garside's statement here that it is protectionism has held the US auto industry back. "What protectionism", one might ask? Two years back foreign automakers surpassed the Big 3 for the first time with more than 50% of the US auto market; that figure is hardly the sign of a vigorous protectionist policy, which one might expect to have kept the market share held by foreign automakers to a sliver (as was indeed the case in heavily protectionist India until the mid-90s; India is hardly a useful comparative case here). It appears instead that US consumers are voting with their dollars, and they are voting for foreign products, either made abroad or by transplants in the US, and they have moreover been doing so for decades now. And those transplant factories? They are relatively new factories, with state of the art technology. And oh yeah, there are no unions to deal with either. Third, anyone following the recent discussion about Detroit's failures will know that the main reason for this is absolutely horrible management. One example: Last month the New York Times ran the following front page story about the failure of the GM Saturn: http://www.nytimes.com/2008/12/04/business/04saturn.html Several reasons are cited in this article, but a key one is lack of sustained investment by management in this product line. Similarly, last month Robert Kuttner noted on "This Week With George Stephanopoulos" how a decade or so ago Ford or GM had always displayed an electric car at its annual car shows. But despite huge consumer interest, it was another stunt: There was no follow-up towards sustained development and production. 20 years ago, the US auto industry was ahead in hybrid and electric vehicle technology; now it is lags behind, because of a lack of investment, R&D, and a foolish gamble on SUVs that has gone horribly bad. And on and on. Examples of poor management and poor strategic vision like this are simply legion, and this has nothing to do with protectionism. Fourth, to Alan's point about the competitiveness of some sectors of the US economy: I do not deny this (though I must add that the picture in aerospace is not as rosy as you imply). But the US has a population of 300 million people. Aerospace, pharmaceuticals and software can employ some millions, but they are not going to be adequate to employ the bulk of the US workforce, in the way that steel and autos (and related industries, like parts suppliers and the like) did in the past. I would be glad to entertain suggestions about which industry or industries will become the leading sector(s) of the 21st century economy (perhaps a "green revolution" can generate millions of new jobs, though I doubt it). But as Peter Schiff has said quite rightly, an economy is not based solely on consumption. It also requires production. A big part of the US dilemma today is that millions of core manufacturing jobs have been exported abroad, and despite reduced employment possibilities Americans have maintained consumption by maxing out their credit. Over the long term, that has meant massive trade deficits, and these are in large part responsible for the current crisis, for the reasons I mentioned previously. It has been all been a big shell game, and now the bill is coming due. Finally, I see that my questions have gone unanswered as usual. I will restate them: Can anyone explain to me how running a $825 billion annual trade deficit, after several decades of trade deficits building up to this level, is not incredibly irresponsible behavior? Can anyone explain to me how such deficits are remotely sustainable at this point (this question is academic, since trade is collapsing as I type this)? Can anyone explain to me how placing trillions of dollars in the hands of sovereign wealth funds managed by foreign governments, for example the PRC, can possibly be good for the US? Can anyone tell me how it is fair for American workers to be lectured down to about "free trade" and "competition" that pits them against workers who make a fraction of their wages? Can anyone tell me how more free trade is going to help solve a mess that was fundamentally created by US underproduction and overconsumption, both masked for several decades by financial legerdemain that has now gone bad? Can anyone tell me that it is not absurd to talk about how "protectionism" (I prefer the term "fair trade") will cause a depression, when that is in fact where free trade, couple with financial irresponsibility, is inexorably steering us already? In sum, free trade is implicated deeply in this financial collapse. The US can no longer afford the luxury of consuming beyond its means while sending more and more of its productive base overseas (not much left to export at this point, of course, and if the US auto industry does collapse things will be really dire). And the trade issue must be addressed as part of the regeneration of the US economy. The few bright sectors of the US economy are simply not going to be sufficient to employ a nation of 300 million people and produce the goods and services needed to balance US trade. Dreams of a "green revolution" sound great, but they are currently pie in the sky. I agree with what Taggart Murphy concludes in the article that I posted here a few weeks back: The US must bring back the jobs it has exported abroad, perhaps not those in textiles or other labor-intensive industries, but certainly in some industries (including those aerospace jobs being outsourced to countries like China, A lan). And it has to abjure casino capitalism, which cannot be the basis of a real economy for 300 million people and has created this terrible mess, in part by facilitating the export of this country's industrial base. John M. --~--~---------~--~----~------------~-------~--~----~ Persons posting messages to not_honyaku assume all responsibility for their messages. The list owner does not review messages prior to posting, and accepts no responsibility for the content of messages posted. -~----------~----~----~----~------~----~------~--~---
