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Trade

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If it’s a tsunami you’re afraid of, what happened in the Indian Ocean last month is probably not what you should be worrying about.

The tsunami Americans need to fear is the man-made wave of globalization that has helped gut the American work force by exporting its jobs overseas in part through the cute little trick known as “offshoring.” We know the threat is big because last month even Business Week started paying attention to it.

In its Dec. 6 issue Business Week sported a sizeable article titled Shaking up trade theory by Adam Bernstein. The article is newsworthy because, for probably the first time ever, an establishment business magazine raised some serious questions about the free trade dogmas that underlie globalization and much of the economic theory and policy of the last several decades.

For a pillar of the business establishment like Business Week to do so is a bit like Scientific American raising questions about the law of gravity.

What worries a good many of the economists cited in the article is that the basic assumption of free trade theory—the doctrine of comparative advantage, as it’s called—doesn’t add up. Under the doctrine,

“most economists have concluded that countries gain more than they lose when they trade with each other and specialize in what they do best. Today, however, advances in telecommunications such as broadband and the Internet have led to a new type of trade that doesn’t fit neatly into the theory. Now that brainpower can zip around the world at low cost, a global labor market for skilled workers seems to be emerging for the first time—and has the potential to upset traditional notions of national specialization.”

The article cites no less an icon of the economic high priesthood than Nobel Prize winner Paul Samuelson, who recently raised his own questions about the benefits of free trade in the Journal of Economic Perspectives. Mr. Samuelson’s questions had some negative answers.

As Business Week summarizes his argument:

“The fact that programming, engineering, and other high-skilled jobs are jumping to places such as China and India seems to conflict head-on with the 200-year-old doctrine of comparative advantage. With these countries now graduating more college students than the U.S. every year, economists are increasingly uncertain about just where the U.S. has an advantage anymore—or whether the standard framework for understanding globalization still applies in the face of so-called white-collar offshoring.”

Not all economists agree, and the article offers a nutshell of the debate that’s beginning to ripple through the academic and business communities. But what’s news is that there’s a debate at all.

For nearly two centuries the doctrine of comparative advantage,formulated by economic theorist David Ricardo in the early nineteenth century, has held much the same status as the Virgin Birth. Now even the high priests are starting to doubt.

One reason they’re doubting is that while it’s long been known that free trade scuttled blue-collar workers out of their jobs, nowadays it’s starting to carve into white-collar workers. That means—eventually—the kind of people who write about trade policy—like Mr. Bernstein and his friends.

“Until now,” Mr. Bernstein writes, “the pain of globalization has been borne by less than a quarter of the workforce, mostly lower-skilled workers, whose wage cuts outweighed the cheaper-priced goods globalization brings.”

But someone else is sharing the pain—namely, the very class that thought free trade was such a hot bargain.

Mr. Bernstein cites a study from Forrester Research in Cambridge, Mass., as offering “the most detailed projections so far” of how bad the white collar hit might be.

The Forrester study sees “the pace of U.S. job flows abroad averaging 300,000 a year through 2015, probably a conservative estimate.”

“Already, some 14 million white-collar jobs involve work that can be shipped electronically and thus in theory could be moved offshore,” yet another study has found. “White-collar workers have a right to be scared,” says Harvard University’s labor economist Lawrence F. Katz.

So did blue collar workers, but nobody cared much about them.

It’s hardly surprising that nobody paid much attention to the real costs of free trade and globalization until they started eating the very people who promoted them and gained from them. That sort of thing is common enough throughout history.

It remains to be seen if the wreckage of the white collar class—the business, political and intellectual elite of the country—turns out to be quite as devastating as some of the pessimists are predicting.

If it weren’t for the problem that the wreck of those elites would probably wreck the country along with them, we just might all be better off if the devastation turned out to be real.

(Republished from VDare by permission of author or representative)
 
• Category: Economics • Tags: Trade 
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The good news, as reported across front pages last week, is that some 250,000 new jobs were created in the American economy in the last month.

The bad news, at least for those who hold the jobs or would like to, is that they may soon go overseas.

The June issue of American Demographics explains why outsourcing,” the economic counterpart to ethnic cleansing, is the wave of the future—unless it’s controlled. [PROFITS vs. JOBS, June 1, 2004 (Pay Archive)]

In 2003 Forrester Research projected that by 2015 some 3.3 million white-collar jobs and the $136 billion those who hold them earn will bid a fond farewell to American shores, about 2 percent of all jobs. Last year also, another firm, DeLoitte, reported that some 2 million financial services jobs will take a powder in the next five years.

There are other projections of similar or larger job losses from others—universities, consulting firms, corporations. Paul Craig Roberts, economist and columnist, predicts the United States “will be a Third World country in 20 years.” That’s not even mentioning Third World immigration. [Economist's Challenge Puzzles Free-Trade Believers, By Paul Blustein, Washington Post, February 26, 2004]

The reason is that the Third World as presently defined can now perform the same jobs Americans do at far lower costs. Therefore, in the inexorable logic of capitalism, the Americans get dumped and the foreigners get hired. Today the mountain does not have to go to Mohammed, so to speak, because Mohammed—the job itself, especially if it can be done online or over the wires—can go to the mountain.

Fans of outsourcing, including the Bush administration and its supporters, are not worried. Like the chap in the first Bush administration who, being told that the country was losing the computer chip industry to foreign competitors, replied, “computer chips, potato chips, what’s the difference?” The champions of outsourcing see it all as part of the “creative destruction” that capitalism generates.

This was also the argument for NAFTA, the 1993 free trade pact that promised to help Mexico become a 21st century economy. Even though American jobs might move to Mexico to take advantage of lower labor and production costs, new jobs would pop up here, so displaced American workers would simply readjust.

That hasn’t happened, and it won’t happen with outsourcing either.

One reason it hasn’t happened is that as soon as the “new job”appears, those who offer it start figuring out how to get it done more cheaply.

If the job is menial, you can hire illegal immigrants, but if it requires something like high-tech or white collar skills, you have to send it abroad.

And today there is precious little that can’t be exported.

“Conventional wisdom,” one economist with the AFL-CIO tells American Demographics, “is that there is this Promised Land out there somewhere, the next innovation that will soak up all these American workers. But now, anything delivered over telephone or computer can be outsourced. We see outsourcing move up the skills ladder, we’re going from data entry up to radiology—there’s no logical end to the trend.”

So what are Americans going to do when all their skilled jobs vanish to Bangladesh and Burundi? “The answer, says [Paul Craig] Roberts, seems more and more like jobs at deli counters.”

If you thought the 250,000 jobs created in May was great, consider the 308,000 created in March. But looking closely at the March jobs,American Demographics notes, suggests a less cheerful picture:

“Manufacturing jobs showed no gain, nor did semiconductors and electronic components, computer and peripherals, chemicals. IT [information technology] lost 1,000 and telecom and ‘electrical equipment and appliances’ sector lost 2,000 each. Sectors that added jobs paid an average of 21 percent less than those that lost.”

Moreover, as attorney Thomas Piatak noted in the May issue of Chronicles, “the growth areas in our free-trade economy are government and areas subsidized by government … and areas insulated from foreign competition.”

It was those two sectors that accounted for more than 70 percent of the March job growth.

In general the people who like outsourcing are the same people who like mass immigration—to them the nation, as a cultural and even as a political unit doesn’t exist and isn’t important, and neither are the people who make up the nation or their way of life.

If they can be replaced by immigrants, that’s terrific, and if their jobs can go to immigrants before they immigrate, that’s even better.

Mass immigration may be starting to produce a popular reaction among Americans who see what it’s really doing to them and their country.

Outsourcing and the whole jungle of globalization that goes with it can only accelerate that reaction, as those who live on the receiving end of globalism experience the economic as well as the political, cultural and racial dispossession it inflicts.

(Republished from VDare by permission of author or representative)
 
• Category: Economics • Tags: Outsourcing, Trade 
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Back in 1993, when the propaganda campaign for passage of the North American Free Trade Agreement was swinging, there were three main reasons offered as to why NAFTA should pass. It would help reduce illegal immigration from Mexico; it would help modernize the Mexican economy, and it would help Americans by removing trade barriers. Not one turned out to be true.

The effect on immigration is obvious enough: Immigration ever since has been bigger than ever. The “Mexican modernization” myth went south during the Mexican peso crisis a few months later. As for the impact on Americans, NAFTA has been pretty much a zilch as well, except perhaps for the mega-corporations that benefit from it. But how much of a zilch NAFTA and similar globalization measures have been is made a little more clear in a recent report in the New York Times. What NAFTA and similar agreements mean is probably the extinction of America’s small towns.

“All along the nation’s back roads,” the Times reports, “hundreds of towns … are teetering in the recession, and some worry that they may never recover.” [NYT, Changes in World Economy on Raw Materials May Doom Many Towns February 16, 2002] The reason the Times offers is sound: “Since the last recession, in the early 1990′s [before NAFTA], China, Russia and the former Soviet republics have charged into the world’s commodity markets. At the same time, new trade agreements have erased quotas and tariffs that long insulated United States industries from competitors.” NAFTA is not explicitly mentioned, but what other “new trade agreements” can you think of that have been adopted since the early 1990s?

As a result, small American towns wither. In Brady, Texas, farmers who relied on the export of angora wool “are victims of low prices and competition from New Zealand and Argentina.” For Bartow, Ga., “high production in countries like China have led to an oversupply and plunging prices” and the consequent devastation of the town. In Loving, N.M., which is near the “nation’s largest deposits of potash, a basic ingredient of fertilizer,” the agricultural recession and Canadian potash competition is destroying the farming economy on which the town relies. “The mining companies say most of those jobs may be gone for good.”

The free trade myth, of course, is that it all balances out. Farmers, miners and any other kind of worker put out of business by free trade can always find some new job doing something else. Right—like the people who used to be farmers and now sell antiques, as some in Silver City do, or those in Brady whose “game-stocked woods bring in money from hunters.” Of course, too, there is another kind of “balancing out,” which is simply that small towns that can’t compete with the slave labor of China and the low prices of South America simply vanish. The economic reality for workers and farmers who are middle-aged, middle-income and middle-educated is that they can’t adjust by becoming software engineers. Even if they did, Silicon Valley entrepreneurs would hire imported Indian technicians instead of the Americans. The economic reality is that Americans put out of business by the glorious globalization celebrated by business and political elites become a proletariat and the small towns from which they come cease to exist.

Aside from the economic consequences of globalization, the social and cultural—and perhaps ultimately the political—effect will be incalculable. As small towns cease to exist, cities will expand. Independently owned firms and farms will vanish along with the towns on which they depended. Workers will become more dependent on big businesses and big bureaucracies and will lose not only their economic independence but also their social and intellectual autonomy. In other words, workers and farmers who were once independent will become the equivalent of post-industrial serfs, bound not to the land but to vast organizations they don’t own and can never control.

Politically, the result will be the enhancement of the power of the elites that do run such bureaucracies and the further erosion of republican self-government. The whole point of republicanism as the Founding Fathers and their predecessors understood was that the economic and political independence of the citizen was essential for the existence of a republic. When citizens lose their autonomy and become dependent on others— government, corporations, unions—the self-government that defines republicanism dies.

The globalization that today is starting to wipe American small towns off the map merely helps complete a process of consolidation that started as early as the nineteenth century, when big business and big government between them swallowed whole communities. The difference is that back then many Americans resisted the dispossession they saw coming. Today, few Americans resist at all, and most are perfectly happy to play with the new toys the global economy promises them—and so far has failed to deliver.

(Republished from VDare by permission of author or representative)
 
• Category: Economics • Tags: Trade 
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“Free trade” and its partner, “globalization,” are the happy thoughts of the day, with few in either party of any ideological persuasion expressing disagreement. But there are reasons to disagree with the direction in which the words point. Last week an article in the New York Times reminded us of some of them.

So dependent on exports to the United States have both Mexico and Canada become, the Times reports, that our recession means they slump too. Each country now sends the United States more than 85 percent of its exports, but when we have a recession, which we now do, Americans stop buying. That means Mexico and Canada suffer. But, because both nations are now linked with the American economy through the North American Free Trade Agreement (NAFTA), there’s nothing anyone can do about it.

“This is the price both countries are paying for their close integration with the United States,” Riordan Roett, an international economist at Johns Hopkins University, told the Times. “They benefit greatly when the United States grows, but when there is a downturn they feel the social and economic consequences immediately.”

In the case of Canada, the slump means that its manufacturers are stuck with a large inventory of goods they can’t sell—expected to carry over until 2002. That means Canadian companies halt production, since they can’t sell any more goods, and start laying off workers. Unemployment in Canada is now 4.7 percent and may rise to more than 6 percent this year.

In the case of Mexico, as the governor of the country’s central bank, Guillermo Ortiz, told the Times, “The weakened economy in the United States will mean decreased Mexican exports, less direct foreign investment and delays in the start of important new manufacturing projects.”

Eventually, both countries will no doubt recover, but even so, there are some lessons to be learned.

Lesson One is that trade means dependence. The more a nation trades with another, the more dependent its economy becomes with those of other nations. That’s the main reason Free Trade Utopians always gabble on about how free trade means world peace. Unfortunately, it has never meant peace, and it’s not uncommon for major trading partners to go to war with each other.

The more one nation trades with another, the more dependent they become on each other, and the more vulnerable each is to the weaknesses in the economy—and government and society and culture of the other. If the consumers of Nation A no longer want to sip Wonder Cola during their siestas, then Nation B, which exports Wonder Cola, takes a dive—and so do all the workers and investors who depend on the nasty beverage in Nation B. But if Nation A has a revolution or a religious awakening or a civil war, it may start restructuring its economy to avoid any connection with Nation B at all. Then Nation B may take a dive and not come to the surface again.

But, if Lesson One of Free Trade is dependence on economies, states and cultures over which we have no control or influence, Lesson Two is that Lesson One may mean political integration as well. Free trade drives transnational government and the erosion of national sovereignty—precisely so one (or each) country can have control of what goes on in the other one. Indeed, that’s exactly what the U.S. ambassador to Canada, Paul Cellucci, suggested last summer.

Bubbling with glee at the immense success he thinks NAFTA represents, Mr. Cellucci told Canada’s National Post that he believes the borders between the three North American states should be dismantled. “Mr. Cellucci,” the Post reported, “the former governor of Massachusetts and a close friend of George W. Bush … suggested the borders between Canada, the United States and Mexico be dismantled with the aim of achieving a more fully integrated economy.” A Canadian transnationalist, Maurizio Bevilacqua, chairman of the Canadian House of Commons finance committee, made similar noises. “With NAFTA, the economies of Canada, the U.S. and Mexico are becoming increasingly integrated…. we have to take the logical steps in maximizing the benefits of such an agreement.”

Just so. The next logical step after free trade breeds economic interdependence is the political and cultural interdependence that dismantling the borders would mean. If tax policies, regulations, labor laws and other politically driven forces in Nation A affect its economy, then those dependent on Nation A’s economy in Nation B will have to have a say in determining what they are.

Most Americans bought into the premises of free trade and globalization without thinking through their implications for national sovereignty, national independence and the survival of the American identity as a civilization and a nation. But the implications are clear enough, and maybe we should start thinking about them now.

(Republished from VDare by permission of author or representative)
 
• Category: Economics • Tags: Trade 
Sam Francis
About Sam Francis

Dr. Samuel T. Francis (1947-2005) was a leading paleoconservative columnist and intellectual theorist, serving as an adviser to the presidential campaigns of Patrick Buchanan and as an editorial writer, columnist, and editor at The Washington Times. He received the Distinguished Writing Award for Editorial Writing of the American Society of Newspaper Editors (ASNE) in both 1989 and 1990, while being a finalist for the National Journalism Award (Walker Stone Prize) for Editorial Writing of the Scripps Howard Foundation those same years. His undergraduate education was at Johns Hopkins and he later earned his Ph.D. in modern history at the University of North Carolina at Chapel Hill.

His books include The Soviet Strategy of Terror(1981, rev.1985), Power and History: The Political Thought of James Burnham (1984); Beautiful Losers: Essays on the Failure of American Conservatism (1993); Revolution from the Middle: Essays and Articles from Chronicles, 1989–1996 (1997); and Thinkers of Our Time: James Burnham (1999). His published articles or reviews appeared in The New York Times, USA Today, National Review, The Spectator (London), The New American, The Occidental Quarterly, and Chronicles: A Magazine of American Culture, of which he was political editor and for which he wrote a monthly column, “Principalities and Powers.”