The White House is only telling you half of the sad story of American jobs
- The Trump administration's timeline on the decline of American workers starts in the late 1990s with the rise of China.Reuters
- That thinking overlooks the impact of spending cuts, deregulation, and a shift to shareholder primacy at the expense of investment in innovation and workers.
- That began in the 1980s when Ronald Reagan was president and led a push for more Laissez Faire economics.
- Ignoring the US's hand in the demise of its own working class means this administration will never actually find ways to grow the economy for them.
White House Trade Council head Peter Navarro was explaining what he sees as the biggest problem with the American economy since the 1990s that exacerbated inequality and left the American worker in the lurch.
"Well, I think you start with the idea that we've had 15 years of subpar growth - 2 percent or below," he said in an interview with NPR to promote "Made in America Week."
"Prior to 2001, we grew at 3 and a half percent. The big difference has been the entry of China in particular into the World Trade Organization and our markets. And we've just been hammered. What that does as a proxy, basically, is it drains essentially the lifeblood out of our manufacturing economy, out of our communities, out of our tax bases."So the narrative from the White House is that China's big push into global markets is the root cause for stagnant economic and wage growth since the turn of the millennium. But that narrative has a really basic flaw: It's only half the story. And with only half the story, you're not going to find a whole solution to the slow growth, low wage, low unemployment predicament we find ourselves in now.
The problem didn't start in the 1990s, it started in the 1980s, when Ronald Reagan - a hero of the Trump administration - was president, and neoliberal economics were first making their mark on policy. Reagan and his ilk distrusted government and believed that the private sector could make the best decisions when left on its own. You've heard about this - it's called laissez faire economics.
This ideology ultimately led to the financialization of the US corporation - the process of putting shareholders first, often at the expense of workers and consumers - and its emergence as an actor that takes resources from the economy rather than creating them. This, combined with a government zeal for lowering taxes rather than spending, means no one - not the government, and not the private sector - is investing enough in America to keep the economy strong across social classes.
In short: Government cuts and changes in how corporations operate mean American workers are getting screwed by their own government and their own employers.
Navarro and I end up with the same dire view of the current economic landscape. We just disagree on how we got there.
An unstoppable force...
But I'm jumping ahead - let's go back to the Reagan era. That was also the time Japanese manufacturers had developed a superior management style to their American rivals and, frankly, started eating our lunch.Instead of keeping a wall between management and workers, Japanese manufacturers adopted "organizational integration," which put technical specialists and shop-floor workers together. The result was better products made faster in Japan, and jobs lost permanently in the United States.
describes the results of that transformation in his 2012 paper, "The Financialization of the US Corporation: What Has Been Lost, and How Can It Be Regained." It's a must-read for this kind of stuff.
Lazonick describes the huge negative effect competition from Japanese manufacturers had on American manufacturing jobs:
"The adverse impact of Japanese competition on US employment became particularly harsh in the double-dip recession of 1980-1982 when large numbers of good blue-collar jobs disappeared from US industry, as it turned out permanently (Bednarzik 1983).
"Previously, in a more stable competitive environment, US manufacturing companies would lay off workers with the least seniority in a downturn and re-employ them when economic conditions improved. Now companies were much more likely to shutter whole plants (Harris 1984; Hamermesh 1989).
"From 1980 to 1985 employment in the US economy increased from 104.5 million to 107.2 million workers, or by 2.6 percent. But employment of operators, fabricators, and laborers fell from 20.0 million to 16.8 million, a decline of 15.9 percent (US Department of Commerce 1983, 416; and 1986, 386)."Industries like consumer electronics, automobiles, machine tools, steel and microelectronics were all hit especially hard by Japan's advancement.
Most never recovered. Some companies disappeared from the face of the earth, like consumer electronics maker RCA. In 1981 it was a global leader, by 1986 it was bought by GE and then chopped up and sold for parts.
...meets an immovable object
The head of the SEC, John Shad, was a former banker - something that hadn't happened in 50 years. He, like Reagan, believed that the private sector could channel funds better without regulation and so he wrote rules with that in mind.
For example, in 1982 he made it legal for companies to repurchase their shares on the open market pretty much whenever they wanted. Previously, the SEC had considered this a form of stock price manipulation.
This was also the era of the corporate raider, pushing companies to become leaner and more profitable as quickly as possible.The shareholder became the main thing for a company to worry about. Employees lost their status. Companies feared getting attacked, so they bent over backward to mollify the former at the expense of the latter. Those new stock repurchasing rules, for one thing, allowed them to shore up their defenses by buying back stock. But, of course, that meant spending money that could've gone to innovate, invest in new technology and equipment, or reward workers.
That's when Lazonick says the financialization of the American corporation began in earnest, and blue-collar workers were left behind by corporate America and the government alike:
"As secure middle-class jobs for high-school-educated blue-collar workers permanently disappeared, there was no commitment on the part of those who managed US industrial corporations or the Republican administrations that ruled in the 1980s to invest in the new capabilities and opportunities required to upgrade the quality and expand the quantity of well-paid employment opportunities in the United States on a scale sufficient to re-establish conditions of prosperity for these displaced members of the US labor force."
Reagan's mission was to cut the budget - which meant not spending money investing in the future of these workers. In the decades after this process started, manufacturing workers would find their numbers diminishing as corporations sought ways to please shareholders, and the government sought ways to lower taxes and deregulate the private sector.
No one had their backs.
The rich get richerWhen corporations borrow money, one would think that money would go into investment in the firm. But according to the Roosevelt Institute, a left-leaning Washington think tank, since the 1980s, companies have invested less than 10 cents of each borrowed dollar. They've put far more effort into buying back stock which, thanks to the way executive compensation works, makes the C-suite richer and richer.
From 2003 to 2012, S&P 500 companies used 54% ($2.4 trillion) of their earnings for stock buybacks. That has also contributed substantially to the inequality we're seeing, as the main beneficiaries of buybacks are wealthy investors.
Meanwhile, the private sector has called on the government to invest in innovation. Back in 2010 the American Energy Innovation Council - which includes executives from Microsoft, Bank of America, and other massive companies - called on the government to increase its investment in alternative energy from $5 billion to $16 billion annually.
Of course, as Lazonick pointed out in his paper, seven of the companies on the council had spent $228 billion from 2000-2010 on stock buybacks.
To put this another way: big business is asking the government to assume the risk involved in innovation, so they can take advantage of the benefits.
Navarro never mentions things like this. No one in the administration ever does. The way they tell the story, the only problem in corporate America lies with foreigners taking advantage of unfair circumstances and big multinationals that cut jobs domestically to tap cheap labor abroad.The administration thinks the remedy for that is punishing China - and other trading partners - who have a competitive edge. They look outward instead of inward. Navarro hammered on this trend:
"...what's interesting is that with every different country that we have a large trade deficit with, we have a different set of problems - with Mexico, for example - cheap labor," Navarro explained. "With Germany, they have a misaligned currency. So if you address these issues of unfair trade practices, if you get better trade deals, if you stop things like forced technology transfer or the theft of our intellectual property, if you ensure that the sweatshops of the world live up to international standards for minimum wage and safe working conditions, if you have reasonable environmental protection, then American manufacturers can compete with anybody in the world."
If this is the way you look at that problem, you're not going to find a sustainable solution. The world didn't take America's jobs, America let the world have them without investing in a path to new ones because politicians were more interested in tax cuts, and corporate America was more interested in short term gains.
That's the part of this sad story you won't hear from the Trump administration.