Monday, August 15, 2016

The Meaning of the 2016 Election

From Francis Fukuyama, at Foreign Affairs, "American Political Decay or Renewal?":
Trump’s policy pronouncements are confused and contradictory, coming as they do from a narcissistic media manipulator with no clear underlying ideology. But the common theme that has made him attractive to so many Republican primary voters is one that he shares to some extent with Sanders: an economic nationalist agenda designed to protect and restore the jobs of American workers. This explains both his opposition to immigration—not just illegal immigration but also skilled workers coming in on H1B visas—and his condemnation of American companies that move plants abroad to save on labor costs. He has criticized not only China for its currency manipulation but also friendly countries such as Japan and South Korea for undermining the United States’ manufacturing base. And of course he is dead set against further trade liberalization, such as the Trans-Pacific Partnership in Asia and the Transatlantic Trade and Investment Partnership with Europe.

All of this sounds like total heresy to anyone who has taken a basic college-level course in trade theory, where models from the Ricardian one of comparative advantage to the Heckscher-Ohlin factor endow­ment theory tell you that free trade is a win-win for trading partners, increasing all countries’ aggregate incomes. And indeed, global output has exploded over the past two generations, as world trade and investment have been liberalized under the broad framework of the General Agreement on Tariffs and Trade and then the World Trade Organization, increasing fourfold between 1970 and 2008. Globalization has been responsible for lifting hundreds of millions of people out of poverty in countries such as China and India and has generated unfathomable amounts of wealth in the United States.

Yet this consensus on the benefits of economic liberalization, shared by elites in both political parties, is not immune from criticism. Built into all the existing trade models is the conclusion that trade liberalization, while boosting aggregate income, will have potentially adverse distributional consequences—it will, in other words, create winners and losers. One recent study estimated that import competition from China was responsible for the loss of between two million and 2.4 million U.S. jobs from 1999 to 2011.

The standard response from trade economists is to argue that the gains from trade are sufficient to more than adequately compensate the losers, ideally through job training that will equip them with new skills. And thus, every major piece of trade legislation has been accompanied by a host of worker-retraining measures, as well as a phasing in of new rules to allow workers time to adjust.

In practice, however, this adjustment has often failed to materialize. The U.S. government has run 47 uncoordinated federal job-retraining programs (since consolidated into about a dozen), in addition to countless state-level ones. These have collectively failed to move large numbers of workers into higher-skilled positions. This is partly a failure of implementation, but it is also a failure of concept: it is not clear what kind of training can transform a 55-year-old assembly-line worker into a computer programmer or a Web designer. Nor does standard trade theory take account of the political economy of investment. Capital has always had collective-action advantages over labor, because it is more concentrated and easier to coordinate. This was one of the early arguments in favor of trade unionism, which has been severely eroded in the United States since the 1980s. And capital’s advantages only increase with the high degree of capital mobility that has arisen in today’s globalized world. Labor has become more mobile as well, but it is far more constrained. The bargaining advantages of unions are quickly undermined by employers who can threaten to relocate not just to a right-to-work state but also to a completely different country.

Labor-cost differentials between the United States and many developing countries are so great that it is hard to imagine what sorts of policies could ultimately have protected the mass of low-skilled jobs. Perhaps not even Trump believes that shoes and shirts should still be made in America. Every industrialized nation in the world, including those that are much more committed to protecting their manufacturing bases, such as Germany and Japan, has seen a decline in the relative share of manufacturing over the past few decades. And even China itself is beginning to lose jobs to automation and to lower-cost producers in places such as Bangladesh and Vietnam.

And yet the experience of a country such as Germany suggests that the path followed by the United States was not inevitable. German business elites never sought to undermine the power of their trade unions; to this day, wages are set across the German economy through government-sponsored negotiations between employers and unions. As a result, German labor costs are about 25 percent higher than their American counterparts. And yet Germany remains the third-largest exporter in the world, and the share of manufacturing employment in Germany, although declining, has remained consistently higher than that in the United States. Unlike the French and the Italians, the Germans have not sought to protect existing jobs through a thicket of labor laws; under Chancellor Gerhard Schröder’s Agenda 2010 reforms, it became easier to lay off redundant workers. And yet the country has invested heavily in improving working-class skills through its apprenticeship program and other active labor-market interventions. The Germans also sought to protect more of the country’s supply chain from endless outsourcing, connecting its fabled Mittelstand, that is, its small and medium-size businesses, to its large employers.

In the United States, in contrast, economists and public intellectuals portrayed the shift from a manufacturing economy to a postindustrial service-based one as inevitable, even something to be welcomed and hastened. Like the buggy whip makers of old, supposedly, manufac­turing workers would retool themselves, becoming knowledge workers in a flexible, outsourced, part-time new economy, where their new skills would earn them higher wages. Despite occasional gestures, however, neither political party took the retooling agenda seriously, as the centerpiece of a necessary adjustment process, nor did they invest in social programs designed to cushion the working class as it tried to adjust. And so white workers, like African Americans in earlier decades, were on their own...
It's not just Trump who's agitating for a nationalist economic policy. The Democrats have been pushing protectionist proposals for some time, and Bernie Sanders was pretty much in sync with Donald Trump on the issues. Fukuyama broaches this, but he's a leftist, so won't give Trump any credit.

The winds of change are in the air, either way. The anti-globalist movement's just getting started, frankly.

But keep reading.