The Lou Dobbs Democrats Say Hello To The New Economic Nationalists

This article from the past is an example of how politics is a game of lies and shows just how wrong pundits can be.  It attacks the protectionism of the Democrats and their promises against free trade in 2006.  If the Democrats had stopped the outsourcing, off shoring and illegal immigration as they had promised they would be scoring the big gains in this Tuesday's elections.  But they didn't, and now they pay the price.  Now, it is the Republicans' turn. rng----

from Slate.com

By Jacob Weisberg

Updated Wednesday, Nov. 8, 2006, at 7:59 PM ET

     The bums, or at least many of them, have been thrown out. And so the political conversation turns naturally to the question of what the Democrats will do now that they again share power with a Republican president. And while it may be too soon to fully answer that question, we saw enough during the campaign to be alarmed about one tendency in particular: economic nationalism.

     Many of the Democrats who recaptured seats held by Republicans have been described as moderates or social conservatives, who will be out of synch with Speaker-to-be Nancy Pelosi. The better term, with props to Fareed Zakaria, is probably illiberal Democrats. Most of those who reclaimed Republican seats ran hard against free trade, globalization, and any sort of moderate immigration policy. That these Democrats won makes it likely that others will take up their reactionary call. Some of the newcomers may even be foolish enough to try to govern on the basis of their misguided theory.

     Bruce Reed offers his reasons for the Democratic victory. John Dickerson chalked up Sherrod Brown's victory to "good old-fashioned populism." Dan Gross explains why the Democrats didn't just win over working-class voters; the rich voted for them, too. Looks like these negative campaign ads didn't help out the Republicans after all. Get your midterm election-analysis fix here.

     There is an important distinction to be made between economic populism and economic nationalism. Many of Tuesday's Democratic victors stressed familiar populist themes: the little guy against the big guy; corporate misbehavior; and tough times faced by working people. Al Gore ran in 2000 as an economic populist and so, implausibly, did John Kerry in 2004. Raising the minimum wage (which Republicans stupidly failed to do before the election) is a classic populist position. Opposing Bush tax cuts for the wealthy is another. But in places where Democrats made their most-impressive inroads this year, one heard a distinctly different message of economic nationalism. Nationalism begins from the populist premise that working people aren't doing so well. But instead of blaming the rich at home, it focuses its energy on the poor abroad. The leading economic nationalist today is probably Lou Dobbs, who on nights other than Election Night natters on against free trade, outsourcing, globalization, and immigration on CNN.

     The most prominent nationalist candidate this year was Sherrod Brown, who unseated incumbent Sen. Mike DeWine in Ohio, a state that has lost 200,000 manufacturing jobs since Bush became president and where unemployment is nearly a percentage point higher than the national average. Brown is the author of a book called Myths of Free Trade: Why American Trade Policy Has Failed. Here is a snippet from one of Brown's TV spots: "I'm for an increase in the minimum wage and against trade agreements that cost Ohio jobs. I support stem-cell research, tighter borders, and a balanced-budget amendment." Announcer: "Sherrod Brown stood up to the president of his own party to protect American jobs, fighting against the Mexico and China trade deals that sent countless jobs overseas." For some reason, economic nationalists never seem to complain about job-killing Dutch or Irish competition. The targets of their anger are consistently China and Mexico, with occasionally whacks at Dubai, Oman, Peru, and Vietnam.

     One heard similar themes in the other pivotal Senate races. In Virginia, apparent winner James Webb denounced outsourcing and blasted George Allen for voting to allow more "foreign guest workers" into the state. In Missouri, victor Claire McCaskill refused to let incumbent James Talent out-hawk her on immigration. "Unfair trade agreements have sent good American jobs packing, hurting Missouri workers and communities," she said in one of her ads. "We should be encouraging businesses to stay at home, not rewarding them for moving overseas." In Michigan, vulnerable Democratic incumbent Deborah Stabenow survived while promising to set up a federal office to prosecute unfair trade by foreign governments.

     An even harder-edged nationalism defined many of the critical House races, where Democrats called for a moratorium on trade agreements, for canceling existing ones, or, in some cases, for slapping protective trade tariffs on China. These candidates also lumped illegal immigrants together with terrorists and demanded fencing and militarization of the Mexican border. In Pennsylvania, Democratic challengers Chris Carney and Patrick Murphy defeated Republican incumbents by accusing them of destroying good jobs by voting for the Central American Free Trade Agreement and being soft on illegal immigration. "Fair trade" candidates also won back formerly Republican seats in Ohio, Indiana, Iowa, North Carolina, and Wisconsin. Jerry McNerney, who defeated 14-year Republican incumbent Richard Pombo in California, says on his Web site: "I am deeply worried about the way this nation is plunging head-long into the global economy without a plan or a national consensus."

     Economic nationalism is not unique to Democrats—nor is it a new theme. The protectionist wing of the party emerged in the 1980s when America's manufacturing decline was first linked to imports and foreign competition. For years, the protectionist urge was exemplified by Richard Gephardt (who focused on Japan and Korea rather than China). But during his 1992 campaign, Bill Clinton made a key decision to support NAFTA.

American Job Loss Is Permanent

Unless the Republicans put an end to off shoring, outsourcing, and illegal immigration their revolution will last no more than six months after the election.  Spread the word.---rng 
Oct. 27, 2010
from vdare.com
By Paul Craig Roberts 

Now that a few Democrats and the remnants of the AFL-CIO are waking up to the destructive impact of jobs offshoring on the US economy and millions of American lives, globalism’s advocates have resurrected Dartmouth economist Matthew Slaughter’s discredited finding of several years ago that jobs offshoring by US corporations increases employment and wages in the US.

At the time I exposed Slaughter’s mistakes, but economists dependent on corporate largess understood that it was more profitable to drink Slaughter’s Kool-Aid  than to tell the truth. Recently the US Chamber of Commerce rolled out Slaughter’s false argument as a weapon against House Democrats Sandy Levin and Tim Ryan, and the Wall Street Journalhad Bill Clinton’s Defense Secretary, William S. Cohen, regurgitate Slaughter’s claim on its op-ed page on October 12.

I sent a letter to the Wall Street Journal, but the editors were not interested in what a former associate editor and columnist for the paper and President Reagan’s Assistant Secretary of the Treasury for Economic Policy had to say. The facade of lies has to be maintained at all costs.  There can be no questioning that globalism is good for us.

Cohen[Email him] told the Journal’s readers that "the fact is that for every job outsourced to Bangalore, nearly two jobs are created in Buffalo and other American cities."  I bet Buffalo "and other American cities" would like to know where these jobs are. Maybe Slaughter, Cohen, and the Chamber of Commerce can tell them.

Last May I was in St. Louis and was struck by block after block of deserted and boarded up homes, deserted factories and office buildings, even vacant downtown storefronts.

Detroit is trying to shrink itself by 40 square miles. On October 25, 60 Minutes had a program on unemployment in Silicon Valley, where formerly high-earning professionals have been out of work for two years and today cannot even find part-time $9 an hour jobs at Target.

The claim that jobs offshoring by US corporations increases domestic employment in the US is one of the greatest hoaxes ever perpetrated. As I demonstrated in my syndicated column at the time and again in my book, amazon How The Economy Was Lost (2010), Slaughter reached his erroneous conclusion by counting the growth in multinational jobs in the U.S. without adjusting the data to reflect the acquisition of existing firms by multinationals and for existing firms turning themselves into multinationals by establishing foreign operations for the first time. There was no new multinational employment in the U.S. Existing employment simply moved into the multinational category from a change in the status of firms to multinational.

If Slaughter (or Cohen) had consulted the Bureau of Labor Statistics nonfarm payroll jobs data, he would have been unable to locate the 5.5 million jobs that were allegedly created.  In my columns I have reported for about a decade the details of new jobs creation in the U.S. as revealed by the BLS data, as has Washington economist Charles McMillion.  Over the last decade, the net new jobs created in the U.S. have nothing to do with multinational corporations.  The jobs consist of waitresses and bartenders,health care and social services (largely ambulatory health care), retail clerks, and while the bubble lasted, construction.

These are not the high-tech, high-paying jobs that the "New Economy"promised, and they are not jobs that can be associated with global corporations. Moreover, these domestic service jobs are themselves scarce.

But facts have nothing to do with it. Did Slaughter, Cohen, the Chamber, and the Wall Street Journal ever wonder how it was possible to have simultaneously millions of new good-paying middle class jobs and virtually the worst income inequality in the developed world with all income gains accruing to the mega-rich?

In mid-October Treasury Secretary and Goldman Sachs puppet Tim Geithner gave a speech in California in the backyard, or former backyard, of 60 Minutes’ Silicon Valley dispossessed upper middle class interviewees in which Geithner said that the solution is to "educate more engineers."

We already have more engineers than we have jobs for them. In a recent poll a Philadelphia marketing and research firm, Twentysomething, found that 85% of recent college graduates planned to move back home with parents. Even if members of the "boomeranger generation" find jobs, the jobs don’t pay enough to support an independent existence.

The financial media is useless. Reporters repeat the lie that the unemployment rate is 9.6%.  This is a specially concocted unemployment rate that does not count most of the unemployed. The government’s own more inclusive rate stands at 17%.  Statistician John Williams, who counts unemployment the way it is supposed to be counted, finds the unemployment rate to be 22%.

The financial press turns bad news into good news. Recently a monthly gain of 64,000 new private sector jobs was hyped, jobs that were more than offset by the loss in government jobs.  Moreover, it takes around 150,000 new jobs each month to keep pace with labor force growth.  In other words, 100,000 new jobs each month would be a 50,000 jobs deficit.

The idiocy of the financial press is demonstrated by the following two headlines which appeared on October 19 on the same Bloomberg page:

• "Dollar Index Appreciates as Geithner Supports Currency Strength"
• "Geithner Weak Dollar Seen as U.S. Recovery Route"

To keep eyes off of the loss of jobs to offshoring, policymakers and their minions in the financial press blame US unemployment on alleged currency manipulation by China and on the financial crisis. The financial crisis itself is blamed by Republicans on low income Americans who took out mortgages that they could not afford.

In other words, the problem is China and the greedy American poor who tried to live above their means. With this being the American mindset, you can see why nothing can be done to save the economy.

No government will admit its mistakes, especially when it can blame foreigners. China is being made the scapegoat for American failure. An entire industry has grown up that points its finger at China and away from 20 years of corporate offshoring of US jobs and 9 years of expensive and pointless US wars.

"Currency manipulation" is the charge. However, the purpose of the Chinese peg to the US dollar is not currency manipulation. When the Chinese government decided to take its broken communist economy into a market economy, the government understood that it needed foreign confidence in its currency.  It achieved that by pegging its currency to the dollar, signaling that China’s money was as sound as the US dollar. At that time, China, of course, could not credibly give its currency a higher dollar value. 

to continue article

America’s Third World Economy

The new american economy.

by Paul Craig Roberts

October 11, 2010

     For a number of years I reported on the monthly nonfarm payroll jobs data.  The data did not support the praises economists were singing to the “New Economy.”  The “New Economy” consisted, allegedly, of financial services, innovation, and high-tech services.

     This economy was taking the place of the old “dirty fingernail” economy of industry and manufacturing. Education would retrain the workforce, and we would move on to a higher level of prosperity.

     Time after time I reported that there was no sign of the “New Economy” jobs, but that the old economy jobs were disappearing.  The only net new jobs were in lowly paid domestic services such as waitresses and bartenders, retail clerks, health care and social assistance (mainly ambulatory health care services), and, before the bubble burst, construction.

     The facts, issued monthly by the US Bureau of Labor Statistics, had no impact on the ”New Economy” propaganda. Economists continued to wax eloquently about how globalism was a boon for our future.

     The millions of unemployed today are blamed on the popped real estate bubble and the subprime derivative financial crisis.  However, the US economy has been losing jobs for a decade. As manufacturing, information technology, software engineering, research, development, and tradable professional services have been moved offshore, the American middle class has shriveled. The ladders of upward mobility that made American an “opportunity society” have been dismantled.

     The wage and salary cost savings obtained by giving Americans’ jobs to Chinese and Indians have enriched corporate CEOs, shareholders, and Wall Street at the expense of the middle class and America’s consumer economy.

     The loss of middle class jobs and incomes was covered up for years by the expansion of consumer debt to substitute for the lack of income growth. Americans refinanced their homes and spent the equity, and they maxed out their credit cards.

     Consumer debt expansion has run its course, and there is no possibility of continuing to drive the economy with additions to consumer debt.

     Economists and policymakers continue to ignore the fact that all employment in tradable goods and services can be moved offshore (or filled by foreigners brought in on H-1b and L-1 visas). The only replacement jobs are in nontradable domestic services, that is, those jobs that require “hands-on” activity, such as ambulatory health services, barbers, cleaning services, waitresses and bartenders–jobs that describe the labor force of a third world country. Even many of these jobs are now filed with foreigners brought in on R-1 type visas from Russia, Ukraine, Thailand, Romania, and elsewhere.

     The loss of American jobs and the compression of consumer income by low wages has removed consumer demand as the driving force of the economy.  This is the reason expansionary monetary and fiscal policies are having no effect.

     The latest jobs report issued today shows that America’s transformation into a third world economy continues.  The economy lost 95,000 jobs in September, mainly due to cuts in local education and federal employment. Part of the loss of 159,000 government jobs was offset by 64,000 new private sector jobs.

     Where are the new jobs?  They are in nontradable lowly paid domestic services: 32,000 were in health care and social services, and 33,900 were in food services and drinking places.

     There you have it.  That is America’s “New Economy. 

http://www.foreignpolicyjournal.com/2010/10/11/americas-third-world-economy/ 

"The Return of Economic Nationalism"

Those who say protectionism doesn't work, aren't thinking of their country--they are thinking of lining their own pockets.---rng

 Political economy at one time held both the fields of politics and economics. In modern economics the two have been separated as intellectual disciplines. In one sense economics has been the worse for it. Lately, economists have been myopic with regard to the effects of economic and national policies set in place by our politicians. The end result is the re-emergence of economic nationalism. Economists ignore politics because it messes up there equations and computer projections, and politicians ignore economics because it messes up there poll ratings and threatens their chances of re-election. The two will be at loggerheads over policies for the foreseeable future. ------lee


Op-Ed, The Providence Journal
June 20, 2009

     GENERAL MOTORS and Chrysler have been declared bankrupt. Meanwhile Treasury Secretary Timothy Geithner recently urged the Chinese not to devalue their currency.
     Most would describe the connection between these events as purely economic, caused by the dislocations of the current financial crisis. But this ignores the deeper meaning of these events, both of which are laden with nationalistic freight.
     Nationalism is difficult to measure and therefore ignored by economists. Yet its effects on the economy, especially in the long term, can be profound. In fact, even when the current crisis blows over, the underlying collision between such societies as China, where economic nationalism is strong, and those like America, where it is weak, will intensify.
     Geithner noted that China's chronic trade surpluses with the United States played an important part in speeding the U.S. economy toward its current crisis. Why? When China exports goods to the United States, it can do only two things with the U.S. dollars it gets: Buy American goods or buy American capital. Like Japan and several other developed economies, it has consistently chosen to accumulate U.S. assets.
     Normally the dollar would fall until American exporters can become more competitive, but the dollar's status as a reserve currency and the deliberate actions of governments like China's have artificially propped it up. The result has been a flood of cheap capital into the U.S., preventing the Fed from raising interest rates to control asset prices.
     The U.S. has had a negative trade balance since 1960, but its trade deficits have been ballooning sharply since 1997. This trade imbalance, if unchecked, will lead to an increasing proportion of the country falling under foreign ownership, leading eventually to a crisis that will shift the world's center of economic and political power.
     Nationalism plays an important part in this process. National governments like to see healthy trade surpluses and undertake open-market operations to weaken their currency and help their exporters. They also protect high-tech and infant industries for the same symbolic reasons. Meanwhile nationalist consumers prefer national brands, and national networks freeze out exporters.
     My father's experience running the Japanese office of a Canadian forest-products company in the early 1980s was an eye-opener. He tried to introduce Apple computers in the office, but this was resisted tooth-and-nail by employees. Their enthusiasm mysteriously materialized when he brought in machines made by NEC, a Japanese manufacturer. Among many similar stories is a tale of trying to penetrate the Japanese newsprint market.
     Local Japanese agents asked him to hide in doorways to prevent their being seen by their colleagues as working on behalf of a foreigner. Time and again, bidders bypassed the Canadian product despite its superior price and quality. The Japanese preferred to see Canadians provide raw pulp, which could then be processed by local manufacturers. Much of this was motivated by nihonjinron, a form of cultural nationalism that took pride in Japan's export performance. In China, exporters who seek to penetrate the local market must also contend with corruption and other barriers.
      Not every country can succeed with economic nationalism. The dark days of socialist self-sufficiency and import substitution were a failure in countries such as Brazil, where economic nationalism had shallow roots. In East Asia, by contrast, there is a widespread sense of ethnic homogeneity and consensus that lets economic nationalism thrive.
     Overall, economic nationalists sacrifice material consumption for the national pride that comes with being a creditor nation that owns foreign assets. On this logic, the U.S. trade imbalance cannot be rectified by the marketplace alone. Reversing this state of affairs requires a major shift in the mentality of exporting countries toward accepting foreign goods and capital. This sticks in the throat of those who prize national self-sufficiency and the moral fiber that comes from saving more than one spends.
     Such notions may strike many as incomprehensible, but previous generations of Americans understood it instinctively. Thomas Jefferson and other republican-minded Founders extolled the virtues of the yeoman farmer, a self-sufficient individual who formed the bedrock of the nation. Nations where landowners lived off tenant famers or serfs were spurned as weaker and less free.
     In the 19th and early 20th centuries, the yeoman ideal underwent transformation, but most Americans identified themselves as producers rather than consumers. Only in the second half of the 20th Century did consumer logic fully displace earlier notions of producerist self-sufficiency.
     Traces of economic nationalism survive in America. It is no accident that the most successful U.S. vehicles are trucks, powerful symbols of rural and working-class masculine patriotism. That GM and Chrysler are being bailed out is partly because their products have been immortalized in song and film as national icons.
     Economic nationalism is not good for the global economy, and protectionism tends to encourage mediocrity. Nevertheless, economic nationalism is a fact of life for many of the country's trading partners, and the U.S. must look to its long-term interests. This suggests that while free trade should be defended, America could benefit by reconnecting with its producerist traditions that emphasize the importance of saving and workmanship.

Eric Kaufmann is a research fellow at the Belfer Center for Science and International Affairs at Harvard's Kennedy School and an associate professor of politics at Birkbeck College, University of London.


to read original article

Michael Savage: China on the Verge of 'Burying' the U.S.

From newsmax.com

Tuesday, 19 Oct 2010 02:33 PM

By: David A. Patten

Outspoken talk-radio host Michael Savage warns that China is steadily wiping out the American industrial base and "burying" the United States by keeping the value of its currency artificially low.

Savage, whose talk show is heard by over 9 million radio listeners each week, writes about the attack underway against the U.S. middle class in his new book, "Trickle Up Poverty: Stopping Obama's Attack on Our Borders, Economy, and Security."

The political clamor over China's trade and currency policies has been steadily building in recent months, in part because of the sluggish economy and high U.S. unemployment.

"They're burying us," Savage tells Newsmax.TV in an exclusive interview. "They are controlling the world's economy by keeping their currency too low, so they can continue to export cheaply . . . And also it cripples those of us in other countries who want to export to China.

"And so unless we impose tariffs on their goods," he says, "we're going to lose every industry. We have lost our machining industry, lost our steel industry, we've virtually lost most of our auto industry."

The Beltway clamor over China's trade and currency policies has been steadily building in recent months, in part because of the sluggish economy and high U.S. unemployment.

In September, Congress passed legislation allowing tariffs to be levied against any country that manipulates its currency to gain a trade advantage. That move was widely condemned in China, which alleged the United States was dumping chickens and slapped a tariff on U.S. poultry imports.

Savage isn't alone in sounding the alarm. This month, billionaire Donald Trump objected to China's policies and stated "outside forces are destroying this country."

Savage warns America must act quickly or risk losing its remaining industrial base.

"Unless tariffs are put on their goods, the few industries that remain in this nation that are viable are liable to disappear very, very shortly," Savage warns. "And the only way to save America is to institute tariffs on specified industries, and to rebuild the manufacturing base of the United States of America."

Savage sees the trade imbalance with China as part of a larger assault on America's middle class. "For at least 150 years," he says, "it was the great middle class that made America unique."

The policies of President Barack Obama and Democrats in Congress are now hurting those middle-class citizens, he says.

"You know, Obama came across as a Robin Hood, who was going to rob from the rich to give to the poor," Savage tells Newsmax. "The exact opposite is true. He's not robbing from the rich to give to the poor. He's shrinking the middle class, to give to the rich and the poor."

The common theme in all of Obama's initiatives, including healthcare reform and new forms of regulation, Savage says, is that the middle class ultimately foots the bill.

"And that's why there's an uproar in the country," Savage says in the exclusive interview. "That's why the tea parties are surging. That's why the tea party candidates are showing so well in polls: Because the people who actually pay the taxes are revolting. And I hope to God they revolt at the ballot box."

Other highlights from the author's interview with Newsmax:

Key staffers are leaving the administration just before the midterms because they know Obama has steered things "so far to the left" that conditions are likely to worsen. "It's like a sinking ship, and the crew is jumping off because they don't want to go down with the ship," he says.

Sen. Harry Reid, D-Nev., is in trouble in his race against GOP challenger Sharron Angle, a tea-party favorite. Savage says the race mirrors the anti-incumbent animus sweeping the country.

He would vote for Meg Whitman over Jerry Brown for California governor, calling Brown a "career politician and a radical leftist at that." But he's concerned Whitman isn't conservative enough. "Beyond her business experience, I don't see any social conservatism. But she's the best we're going to get."

He would vote for anyone over incumbent Democratic Sen. Barbara Boxer of California. "At least [GOP candidate Carly] Fiorina has some business experience, so she knows what it's like to run a business, so we have to go in that direction," he says.

Fiorina and Whitman aren't running stronger in the polls because they've shied away from tackling illegal immigration. "And if you study the polls on illegal immigration, you'll find that even Democrats strongly want something done," Savage says. "So I think both of these Republican candidates are not doing themselves a service, by listening too closely to the professional campaign advisers."

He believes the tea parties have made a mistake by overlooking issues important to social conservatives. "I think the social issues are very important to many of the American people, such as: defend the defense of marriage act, is one of my points; end affirmative action; limit welfare benefits; voting reform," he says. "I don't see any of that in the tea party platform. I put that in there hoping that they'll remember the masses of conservative Americans still care about these social issues."

He believes the Obama administration is peopled with hard-core leftists who consider America's middle class their enemy, saying their policies are "aimed straight at the heart of the middle class, who by the way are suffering the most. The rich aren't doing worse. The poor are still collecting their government checks. Who's getting hit? The middle class. And that's why I call it Trickle Up Poverty."

He likes the recent Pledge to America document that Republicans unveiled, but he doesn't believe it goes far enough. "They mention reducing government but they don't say how, there are no specific targets," he says. He says his book, which offers a 37-point plan to right the nation, provides a detailed roadmap for cutting the deficit. Savage lists how to reduce government, and by how much each year, to get the budget back under control.

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Deindustrialization–Its Causes and Implications

This article is interesting read in that we get a look into the minds of the IMF( an important organization to know of for general knowledge) and what their thoughts are relevant to deindustrialization. You don't have to read the entire article, but check out the first section deindustrialization–its causes and complications, and the section on implications, and finally, the conclusions. For the record, I think their conclusions were largely wrong(specifically, that deindustrialization is a positive phenomenon.) ------lee

Robert Rowthorn
Ramana Ramaswamy
©1997 International Monetary Fund
September 1997

Preface
The Economic Issues series aims to make available to a broad readership of nonspecialists some of the economic research being produced in the International Monetary Fund on topical issues. The raw material of the series is drawn mainly from IMF Working Papers, technical papers produced by Fund staff members and visiting scholars, as well as from policy-related research papers. This material is refined for the general readership by editing and partial redrafting.

The following paper draws on material originally contained in IMF Working Paper 97/42, "Deindustrialization: Causes and Implications," by Robert Rowthorn, Professor of Economics, Cambridge University, and Ramana Ramaswamy of the IMF’s Research Department. Neil Wilson prepared the present version. Readers interested in the original Working Paper may purchase a copy from IMF Publication Services ($7.00).

Deindustrialization–Its Causes and Implications
During the past 25 years, employment in manufacturing as a share of total employment has fallen dramatically in the world’s most advanced economies, a phenomenon widely referred to as "deindustrialization." The trend, particularly evident in the United States and Europe, is also apparent in Japan and has been observed most recently in the Four Tiger economies of East Asia (Hong Kong, China, Korea, Singapore, and Taiwan Province of China). Not surprisingly, deindustrialization has caused considerable concern in the affected economies and has given rise to a vigorous debate about its causes and likely implications. Many regard deindustrialization with alarm and suspect it has contributed to widening income inequality in the United States and high unemployment in Europe. Some suggest that deindustrialization is a result of the globalization of markets and has been fostered by the rapid growth of North-South trade (trade between the advanced economies and the developing world). These critics argue that the fast growth of labor-intensive manufacturing industries in the developing world is displacing the jobs of workers in the advanced economies.

This paper maintains that deindustrialization is primarily a feature of successful economic development and that North-South trade has very little to do with it. Measured in real terms, the share of domestic expenditure on manufactured goods has been comparatively stable over the two past decades. Consequently, deindustrialization is principally the result of higher productivity in manufacturing than in services. The pattern of trade specialization among the advanced economies explains why some countries deindustrialize faster than others. Finally, the paper suggests that advances in the service sector, rather than in the manufacturing sector, are likely to encourage the growth of living standards in the advanced economies in the future.

The Evidence
In the 23 most advanced economies, employment in manufacturing declined from about 28 percent of the workforce in 1970 to about 18 percent in 1994. Among individual economies, deindustrialization started at different times and has progressed at varying speeds. It started earliest in the United States, with the share of manufacturing employment falling from a peak of 28 percent in 1965 to only 16 percent in 1994. In Japan, by contrast, the process started later and has been less dramatic, with manufacturing employment peaking at 27 percent of total employment in 1973 (eight years after the peak in the United States) and then slipping back to about 23 percent in 1994. In the 15 countries of the European Union, the share of manufacturing employment stood at a comparatively high level of more than 30 percent in 1970 but then fell steeply to only 20 percent by 1994.

On the other side of the coin, the share of employment accounted for by services in the advanced economies has increased fairly uniformly, with all advanced economies witnessing growth in service employment since 1960. The United States has led the way here too, with about 56 percent of the workforce employed in services in 1960 and about 73 percent in 1994, a higher share of employment in services than in any other advanced economy. The rise in employment in services has been accompanied by a decline in employment in manufacturing in all advanced economies.

General Explanation
During deindustrialization, the declining share of employment in manufacturing appears to mirror a decline in the share of manufacturing value added in GDP. At first glance, this decline would suggest that domestic expenditure on manufactures has decreased while expenditure on services has increased.

Closer analysis, however, reveals that this conclusion is misleading. Expenditure on services in current price terms has indeed grown in the advanced economies. But this growth can be accounted for by the fact that labor productivity (output per worker) has grown more slowly in services than in manufacturing, pushing up the relative price of services and making manufactures relatively cheaper. When output in the manufacturing and service sectors is measured at constant rather than at current prices, however, the shift in expenditure away from manufacturing to services is nothing like the scale of the shift away from employment in manufacturing to services. Indeed, at constant prices (in contrast to its steeply falling current-price share), the share in GDP of value added by manufacturing in the advanced economies was roughly unchanged between 1970 and 1994.

deindustrialized faster than Japan.

If a shift in domestic expenditure from manufacturing to services has not been a major determinant of deindustrialization, what explains this phenomenon? Two features of the process need to be explained. Why did the share of manufacturing employment in most advanced economies continue to rise until the late 1960s and then decline? Why was an increase in the share of services employment sustained throughout this period?

The rising share of employment in manufacturing in the industrialization stage of development represents to a large degree the movement of employment from agriculture to industry. Two factors explain this shift in employment. One—on the demand side—is what economists call Engel’s law, which states that the relative amount of income that an individual spends on food declines as his income rises. In practice, this means that, as economies industrialize, people spend proportionally less on food and proportionally more on manufactured products and services. The second is on the supply side. The rapid growth of productivity in agriculture, as innovations make it possible to produce more food with ever fewer workers, leads to declining employment in that sector. The combined effect of these demand- and supply-side factors is a large-scale shift of employment from agriculture to manufacturing. Indeed, the overall proportion of employment in agriculture in the advanced economies fell from about 20 percent in the early 1960s to 11 percent in the early 1970s. Given the scale of contraction that has already taken place in the agricultural sector, a further expansion in the share of services employment will subsequently be at the expense of manufacturing employment, just as the earlier shift to manufacturing took place at the expense of the agricultural sector.

It is very difficult to measure precisely productivity in the service sector, and some have argued that the relatively lower rate of productivity growth in services is due to under measurement. Nevertheless, empirical evidence supports the conclusion that productivity in manufacturing has grown faster than productivity in services. Assuming that such productivity patterns continue, the service sector will inevitably have to keep absorbing an ever greater proportion of the workforce just to keep its output rising in line with manufacturing.

An important implication of this analysis is that deindustrialization is not necessarily a symptom of the failure of a country’s manufacturing sector or, for that matter, of the economy as a whole. On the contrary, deindustrialization is simply the natural outcome of successful economic development and is generally associated with rising living standards. This is not to deny, however, that deindustrialization can be linked to difficulties within the manufacturing sector or in the economy as a whole. A country can lose manufacturing jobs directly as a result of such shocks to the system as a large appreciation in the real exchange rate. In these circumstances, the service sector may be unable to absorb a sudden increase in the supply of labor, causing higher unemployment or a fall in the growth of living standards.

The experience of deindustrialization has indeed differed in individual advanced economies. In the United States, the absolute numbers employed in manufacturing have remained roughly constant since 1970, while the overall workforce has grown enormously. In the European Union, by contrast, the absolute numbers employed in manufacturing have fallen sharply, while the total number at work has risen only marginally. There have been negative features of the process in both places, however, with stagnant earnings and widening income disparities in the United States, and rising unemployment in the European Union. Nevertheless, even if these countries had grown faster than they actually did during this period, deindustrialization would still have occurred, though with more favorable effects on living standards and employment during the adjustment period.

Deindustrialization has also varied in timing and in extent among the advanced economies of East Asia. In both Korea and Taiwan Province of China, it began in the mid-1980s after their per capita incomes surpassed the levels achieved by the "old" industrial countries in the early 1970s. In Hong Kong, China, the share of employment in manufacturing reached nearly 45 percent in the mid-1970s but has fallen continuously ever since—to little more than 20 percent by 1993. In Singapore, there has been no clear-cut pattern, with manufacturing employment ranging between 25 percent and 30 percent since the early 1970s. One possible explanation is that Hong Kong, China, and Singapore are both city economies and never had a large agricultural sector from which to draw workers in the first place. It seems clear that the deindustrialization taking place in these Tiger economies, so far at least, has been occurring without the negative effects on employment noted elsewhere.

More Specific Factors

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Economists back Hi-tech Overseas Hiring

Ms. Fiorina is representative of the new class of elite traitors, that care only for profits and not for the welfare of their fellow citizens.  Around the world they scurry, always seeking the lowest prices for labor and resources. and it is all justified by the god of the bottom line.  Only when they need the muscle of the military do they remember their fellow citizens and U. S. blood and treasury will be spilled to ensure maximum private profits.----rng

Unfortunately, Ms. Fiorina forgets that in outsourcing these jobs she is also outsourcing industrial and manufacturing knowledge as well. These things, like jobs, cannot be brought back. To put it another way, we are hollowing out our hi-tech industries just like we hollowed out our car and steel industries.  ----lee

Carolyn Lochhead, Chronicle Washington Bureau

Economists largely agreed with the high-tech industry's outspoken defense of moving jobs to India and China but noted this time the principle applies to a group unaccustomed to losing their jobs to overseas competition: highly educated and highly paid white-collar workers in Silicon Valley.

Comments made in Washington on Tuesday by Carly Fiorina, CEO of Palo Alto information technology giant Hewlett-Packard, and Craig Barrett, chief executive of Santa Clara chipmaker Intel Corp., drew an unusually strong reaction from workers, who suggested the pair forfeit their own highly paid jobs to Chinese or Russian executives working for a quarter of their pay.

Fiorina's statement that "there is no job that is America's God-given right anymore" triggered particularly strong reaction. The pair spoke in Washington representing the Computer Systems Policy Project, a group of eight chief executives from the nation's top information technology firms.

They sought to head off rising protectionist sentiment in Congress by urging that the only way to protect U.S. high-tech jobs over the long haul was to become more competitive.

Warning that the U.S. lead in high technology is in serious jeopardy from competition from other nations, they outlined a long-term agenda to improve grade-school and high-school education, double federal spending on basic research in the physical sciences and form a national policy to promote high- speed broadband communications networks, as Japan and Korea have done.

The CSPP report, called "Choose to Compete," states that the tech industry faces a serious competitive challenge from many countries abroad with highly skilled labor and increasing industrial sophistication, but it argues against protection. "Retreating from global competition is a certain prescription for failure," the report said.

The report says many new jobs will be available when the economy fully recovers, but it asks, "Who will land these jobs? Not the millions of American students who graduate from high school without basic reading, writing and mathematics skills. Not the astonishing number of American students -- upwards of 25 percent -- who drop out of school."

But with unemployment at 7.2 percent in Santa Clara County in November, the latest figure available, Fiorina's statement hit a sore spot.

"I am curious how Ms. Fiorina would feel about her job being outsourced to China or India," Sean Ryan of Alameda, where the county unemployment rate is 6.1 percent, wrote in a representative e-mail to The Chronicle. "I am certain that there are many extremely bright, ambitious and successful executive types in those countries who would be able to do her job just as well if not better than she can at a cost savings to HP shareholders of millions of dollars per year."

Many Bay Area residents argued that it was the low wages in India and China that were motivating Silicon Valley corporations, not a lack of skilled U.S. workers. Some argued for "Buy America" campaigns and greater U.S. self- sufficiency.

"I have many, many friends who are unemployed, and continue to be so because they are 'over-qualified' or 'not a good fit' for a particular position," one tech worker at Bechtel Corp. in Seattle wrote. "I'm talking about people with degrees from Caltech and Stanford. ... It's not that Indians and Chinese are better educated. It's that they'll work for cheap, and they'll work for what most Americans couldn't live on. That's the issue."

But economists view the changes in Silicon Valley as an inevitable byproduct of the continuing flux of dynamic economies, termed "creative destruction" by the famous economist Joseph Schumpeter.

They say the alarm in Silicon Valley about job losses to India and China is no different from equally painful dislocations in older U.S. industries such as steel, apparel, textiles and agriculture as the world increasingly moves to a global market.

(Note:  There is a big difference between losing a job to a local intra-country corporation and to a corporation based in asia-especially a hostile one like China. -------lee)

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Industrial policy

Two questions to economists: Could excessive outsourcing be considered a market failure in light of excessive dependence on strategic metals and commodities and excessive social unrest due to excessive unemployment? Is predatory capitalism (or mercantilism by a foreign country) a market failure? ---lee

The Industrial Policy plan of a nation, sometimes shortened IP, "denotes a nation's declared, official, total strategic effort to influence sectoral development and, thus, national industry portfolio."[1] These interventionist measures comprise "policies that stimulate specific activities and promote structural change"[2].

Industrial policies are sector specific, unlike broader macroeconomic policies. Examples of horizontal, economywide policies are tightening credit or taxing capital gain, while examples of vertical, sector-specific policies comprise protecting textiles from foreign imports or subsidizing export industries. Free market advocates consider industrial policies as interventionist measures typical of mixed economy countries.

Many types of industrial policies contain common elements with other types of interventionist practices such as trade policy and fiscal policy. An example of a typical industrial policy is import-substitution-industrialization (ISI), where trade barriers are temporarily imposed on some key sectors, such as manufacturing[3]. By selectively protecting certain industries, these industries are given time to learn (learning by doing) and upgrade. Once competitive enough, these restrictions are lifted to expose the selected industries to the international market[4].

History

The traditional arguments for industrial policies go back as far as the 18th century. Early arguments in favor of selective protection of industries have been prominently associated with US economist and politician Alexander Hamilton (1790) and the German economist Friedrich List (1844). These arguments were picked up subsequently by scholars of early development economics such as Albert Hirschman and Alexander Gerschenkron, who called for the selective promotion of key sectors in overcoming economic backwardness.

While early development theory affirmed the crucial role of industrial policy, the rise of neoclassical economics in 1970s - also known as the counter-revolution in development thinking[5] - was more critical towards the interventionist measures and instead stressed the importance of free market laissez-faire in promoting structural change. In recent years, however, the advent of endogenous growth theories has led to a convergence towards acknowledging the role of the state in correcting externalities and market failures.

Historically, there is a growing consensus that most developed countries, including United Kingdom, United States, Germany and France, have intervened actively in their domestic economy through industrial policies[6]. These early examples are followed by interventionist ISI strategies pursued in Latin American countries such as Brazil, Mexico or Argentina[7]. More recently, the rapid growth of East Asian economies, or the Newly Industrialized Countries (NICs), has also been associated with active industrial policies that selectively promoted manufacturing and facilitated technology transfer and industrial upgrading[8]. The success of these state-directed industrialization strategies are often attributed to developmental states[9] and strong bureaucracies such as the Japanese MITI. Many of these domestic policy choices, however, are now seen as detrimental to free trade and are hence limited by various international agreements such as WTO, TRIM or TRIPS. Instead, the recent focus for industrial policy has shifted towards the promotion of local business clusters and the integration into global value chains[10].

In August 2010, The Economist highlighted a renewed trend of industrial policy in rich countries, with examples of active government intervention in the United States, Britain, France, Germany, Japan and South Korea. The revival has been driven by four main forces: pressure to reduce unemployment and stimulate growth; a desire to 'rebalance' certain economies away from financial services; popular demands for increased government action; and the perceived need to respond to apparently successful policies being pursued in China.[11]

[edit] Criticism

The main criticism against industrial policy arises from the concept of government failure: While industrial policy is seen not as harmful per se, governments - especially in developing countries - often lack the required information and capabilities to successfully select and promote sectors. Even though the East Asian Tigers provided successful examples of heterodox interventions and protectionist industrial policies[12], industrial policies such as import-substitution-industrialization (ISI) has failed in many other regions such as Latin America and Sub-Saharan Africa: If governments are captured by vested interests, industrial policy would only support the rent-seeking of an elite, while distorting the efficient allocation of resources by market forces at the same time[13].

However, there is a growing consensus in recent development theory that state interventions are often necessary when market failures prevail[14]. Market failures often exist in presence of externalities and natural monopolies. These market failures hinder the emergence of a well-functioning market and corrective industrial policies[15] are required to ensure the allocative efficiency of a free market. In practice, these interventions are often aimed at regulating networks, public infrastructure, R&D or correcting information asymmetries. While the current debate has shifted away from dismissing industrial policies in overall towards assessing the efficacy of specific types of industrial policies, much debate still surrounds the issue whether government failures are more pervasive and severe than market failures.[16]

The Economist identified three lessons for 'successful' industrial policies. First, initiatives that fit with a country's comparative advantage are more likely to succeed. Second, policy is more effective when it follows the market rather than trying to lead it. Third, government intervention is more appropriate in spheres where there is obvious public policy interest, such as military technology or energy supply.[11]

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http://en.wikipedia.org/wiki/Industrial_policy

Deindustrialization

According to Wikipedia's definition we are in the process of being deindustrialized if not already deindustrialized. The US economy satisfies all four definitions listed below. Pretty sad. Do you think this has anything to do with a flawed industrial policy? ------lee

Deindustrialization (also spelled deindustrialisation) is a process of social and economic change caused by the removal or reduction of industrial capacity or activity in a country or region, especially heavy industry or manufacturing industry. It is an opposite of industrialization.

Multiple interpretations
There are multiple interpretations of what this process is. Cairncross (1982) and Lever (1991) offer four possible definitions of deindustrialization:

1. A straightforward decline in the output of manufactured goods or in employment in the manufacturing sector. This, however, can be misleading because short-run or cyclical downturns may be misinterpreted as long-run deindustrialization
2. A shift from manufacturing to the service sectors, so that manufacturing has a lower share of total output or employment. This may also be misleading, however, as such a shift may occur even if manufacturing is growing in absolute terms
3. That manufactured goods comprise a declining share of external trade, so that there is a progressive failure to achieve a sufficient surplus of exports over imports to maintain an economy in external balance
4. A continuing state of balance of trade deficit (as described in the third definition above) that accumulates to the extent that a country or region is unable to pay for necessary imports to sustain further production of goods, thus initiating a further downward spiral of economic decline

Explanations for deindustrialization

Theories that predict or explain deindustrialization have a long intellectual lineage. Rowthorn (1992) argues that Marx's theory of declining (industrial) profit may be regarded as one of the earliest. This theory argues that technological innovation enables more efficient means of production, resulting in increased physical productivity, i.e., a greater output of use value per unit of capital invested. In parallel, however, technological innovations replace people with machinery, and the organic composition of capital increases. Assuming only labor can produce new additional value, this greater physical output embodies a smaller value and surplus value. The average rate of industrial profit therefore declines in the longer term.

Rowthorn and Wells (1987) distinguish between deindustrialization explanations that see it as a positive process of, for example, maturity of the economy, and those that associate deindustrialization with negative factors like bad economic performance. They suggest deindustrialization may be both an effect and a cause of poor economic performance.

Pitelis and Antonakis (2003) suggest that, to the extent that manufacturing is characterized by higher productivity, this leads, ceteris paribus, to a reduction in relative cost of manufacturing products, thus a reduction in the relative share of manufacturing (provided manufacturing and services are characterized by relatively inelastic demand). Moreover, to the extent that manufacturing firms downsize through, e.g., outsourcing, contracting out, etc., this reduces manufacturing share without negatively influencing the economy. Indeed, it potentially has positive effects, provided such actions increase firm productivity and performance.

George Reisman (2002) identified inflation as a contributor to deindustrialization. In his analysis, the process of fiat money inflation distorts the economic calculations necessary to operate capital-intensive manufacturing enterprises, and makes the investments necessary for sustaining the operations of such enterprises
unprofitable.

Institutional arrangements have also contributed to deindustrialization such as economic restructuring. With breakthroughs in transportation, communication and information technology, a globalized economy that encouraged foreign direct investment, capital mobility and labor migration, and new economic theory's emphasis on specialized factor endowments, manufacturing moved to lower-cost sites and in its place service sector and financial agglomerations concentrated in urban areas (Bluestone & Harrison 1982, Logan & Swanstrom 1990).

De-industrialization crisis

The term de-industrialization crisis has been used to describe the decline of manufacturing in a number of countries and the flight of jobs away from cities. One example is Detroit. Companies moved their production to other areas where wages and standards were lower. In addition, technological inventions that required less manual labor erased many manufacturing jobs.

Detroit and the auto-industry are highly regarded as the 'perfect' example of what de-industrialization can do to an area and its people. Today the area has many jobless people, a high concentration of poverty, and noticeable racial isolation. When industry was booming and the area was turned into a factory town, and there was a high standard of living for the people and workers. Presently, however, the factories are abandoned or the areas are now prairie lands. Over one third of the residents live below the poverty line.
The population of the United States has nearly doubled since the 1950s, adding approximately 150 million people. Yet, during this period (1950-2007), the population of the great manufacturing cities of the northeast has declined significantly: Detroit, Cleveland, Pittsburgh, Baltimore, Philadelphia, St. Louis and Buffalo, NY, have all lost nearly half their population in the past half-century. During the 1950s, the nation's twenty largest cities held nearly a fifth of the US population. In 2006, this proportion has dropped to about one tenth of the population.^[1]

Many small and mid-sized manufacturing cities in the Manufacturing Belt experience similar fates. For instance the city of Cumberland, Maryland declined from a population of 39,483 in the 1940s to a population of 20,915 in 2005.

As Americans migrated away from the manufacturing centers, they formed sprawling suburbs, and many former small cities such as Phoenix, Arizona have grown tremendously in the last 50 years. In 2005 alone, Phoenix has grown by 43,000 people, an increase in population greater than any other city in the United States. Contrast that with the fact that in 1950, Phoenix was only 99th out of America's 100 largest cities with a population of 107,000. In 2005, the population has grown to 1.5 million, ranking as the fifth largest city in the US.^[1]

By country

Australia

Although literature (Brady et al. 2007, Feinstein 1999, and Lee 2005) indicates the occurrence of deindustrialization in Australia, industrial employment and output in the country have been steady. Industrial output has been stable since 1975, according to OECD (2008) data, and has been increasing gradually since 2001. Industrial employment has also been stable since 1964, actually increasing since 2001. It is notable that employment in the service sector has been increasing substantially since 1964, with the most dramatic rises occurring from 1995 onward. At the same time, employment in agriculture was steady from 1964 until 2000 when it began to decrease. These contradictions imply that Australia is not deindustrializing. The country has shifted to service oriented production however, with 70% of the GDP resulting from the service sector and only 26% from the industrial sector.

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The New Face of Class Warfare

October 09, 2006

By Paul Craig Roberts

Published in the print edition of Counterpunch, July 2006

For decades Democrats seemed to have a monopoly on class war with demagogy of "the rich." Today it is the rich who are instigating class war with attacks on middle class jobs. The ladders of upward mobility are being dismantled. America, the land of opportunity, is giving way to polarization between rich and poor.

The assault on jobs predates the Bush regime. However, the loss of middle class jobs has become particularly intense in the 21st century, and, like other pressing problems, has been ignored by President Bush, who is focused on instigating war in the Middle East and a police state at home. The lives and careers that are being lost to the carnage of a gratuitous war in Iraq are paralleled by the economic destruction of careers, families and communities in the U.S. Since the days of President Franklin D. Roosevelt in the 1930s, the U.S. government has sought to protect employment of its citizens. Bush has turned his back on this responsibility. He has given his support to the offshoring of American jobs that is eroding the living standards of Americans. Whether this is an impeachable offense, it is another example of his betrayal of the public trust.

"Free trade" and "globalization" are the guises behind which class war is being conducted against the middle class by both political parties. Patrick J. Buchanan, a three-time contender for the presidential nomination, put it well when he wrote (March 10, 2006, World Net Daily column:) that NAFTA and the various so-called trade agreements were never trade deals. The agreements were enabling acts that enabled U.S. corporations to dump their American workers, avoid Social Security taxes, health care and pensions, and move their factories offshore to locations where labor is cheap.

The offshore outsourcing of American jobs has nothing to do with free trade based on comparative advantage. Offshoring is labor arbitrage. First world capital and technology are not seeking comparative advantage at home in order to compete abroad. They are seeking absolute advantage abroad in cheap labor.

Two recent developments made possible the supremacy of absolute over comparative advantage: the high speed Internet and the collapse of world socialism, which opened China’s and India’s vast under-utilized labor resources to first world capital.

In times past first world workers had nothing to fear from cheap labor abroad. Americans worked with superior capital, technology and business organization. This made Americans far more productive than Indians and Chinese, and, as it was not possible for U.S. firms to substitute cheaper foreign labor for U.S. labor, American jobs and living standards were not threatened by low wages abroad or by the products that these low wages produced.

The advent of offshoring has made it possible for U.S. firms using first world capital and technology to produce goods and services for the U.S. market with foreign labor. The result is to separate Americans’ incomes from the production of the goods and services that they consume. This new development, often called "globalization," allows cheap foreign labor to work with the same capital, technology and business know-how as U.S. workers. The foreign workers are now as productive as Americans, with the difference being that the large excess supply of labor that overhangs labor markets in China and India keeps wages low. Labor that is equally productive but paid a fraction of the wage is a magnet for Western capital and technology.

Although a new development, offshoring is destroying entire industries, occupations and communities in the United States. The devastation of U.S. manufacturing employment was waved away with promises that a "new economy" based on high tech knowledge jobs would take its place. Education and retraining were touted as the answer.

In testimony before the U.S.-China Commission (September 25, 2003:[PDF]), I explained that offshoring is the replacement of U.S. labor with foreign labor in U.S. production functions over a wide range of tradeable goods and services. As the production of most tradeable goods and services can be moved offshore, there are no replacement occupations for which to train except in domestic "hands on" services such as barbers, manicurists, and hospital orderlies. No country benefits from trading its professional jobs, such as engineering, for domestic service jobs.

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