Archive for the ‘trans pacific partnership’ category

Free Trade, Positive Or Negative?

November 28, 2016

One of President-elect Trump’s campaign tenets was the renegotiation of NAFTA and the abandonment of the Trans Pacific Partnership. Trump promised that such a move would return jobs for Americans, especially those “rust belt States” workers who had lost their working spots when American manufactures either outsourced work to Mexico or set up factories in Mexico and now did the same work there which was previously done in America. While any trade deal should from time to time be reexamined, thinking the US can roll back globalization is (1) dreaming and (2) have far wider implications than just these displaced workers.

A little history. In the 80’s and 90’s, the US automotive industry was in deep trouble. Quality lagged foreign manufacturers and costs to produce a US auto was greater than an imported one. Get it, pay more for a US auto and get lower quality at the same time.

Union-management relations were mostly ineffective. Automotive companies’ management were lacking in vision and resolve. Union management were intrenched and acted as they were living in the 50’s or 60’s and competition did not exist.

The Automotive companies then hit upon the strategy of moving their captive parts manufacture to new, up to date plants in Mexico. These parts could cost less and be of equal or better quality than when they were manufactured in the US. The automotive companies asked other parts makers to match this quality and cost. Gradually automotive parts decreased in cost, improved in quality, and US produced cars became less costly to produce.  Unfortunately, US employment deceased markedly.

So, the anti-NAFTA argument suggests that had duties and tariffs remained in place as before NAFTA, then jobs would have remained in the US. If this were to be true, a less favorable outcome would have resulted.   Automotive assembly would have shrunk, if not disappeared all together.

Consumers were choosing “price” and “quality” over high price and low quality. In an ironic way, NAFTA saved the US automotive industry and a lot of jobs in the process.

So what about TPP? Is that one deal too many? Should it be rejected out of hand?

A little more history.

The norm in most countries around the world is to erect trade barriers as a means of protecting local industry. This protectionism inevitably leads to poorer quality and higher costs for the host country. In the process, however, local manufacturers or farmers are pleased but the country continues to slowly fall behind other nations in economic growth and prosperity.

More sophisticated countries erect clever regulations, such as safety and consumer protection rules instead of duties or tariffs. The imported products would be rejected unless they passed these rules (and conveniently meeting these rules adds cost to the imported goods).

The TPP is intended to enable a different group of nations to access each other’s markets with virtually no restrictions. This would include some other countries competing in the US marketplace, and if their goods or services were preferred, displace business that might be now served by US companies. It would also allow American companies to shift (outsource) jobs to these countries and import products which were previously manufactured in the US.

But, is TPP the problem or is there a lack of disincentives for American businesses, in the name of increased profits and outsource a greater and more relevant problem?

Open and “fiar” (not just “free”) trade has been fairly well established as the optimum position for a strong and growing economy. More restrictive trade is seductive and countries which succumb to domestic politics and revert to tariffs, embargoes, or duties might win in the very short term but inevitably lose in the longer term.

If the GOP or President-elect Donald Trump are seriously interested in workers who are currently or will soon be displaced by trade agreements, should the Trump Administration walk away form open and fair trade arrangements or instead look to worker protections and/or new taxes on outsourcing companies windfall profits.

What will Donald do?

Advertisements

Waking Up Unions

June 16, 2015

Most people reading this post’s title will immediately think, “oh its about time Unions got their backs up and protected their rights and their jobs”. Well that is sort of what this post is about but it has an entirely different twist.

Wisconsin Governor Scott Walker has provided a case book method for bringing public sector unions to heel. (1) While running for office, do not mention unions as a problem waiting to be fixed. (2) Once in office, move quickly and target only non-police and fire public sector unions (divide and conquer). (3) After the heat dies down, target all other unions by changing State law to a “right to work” State. Quick and efficient.

Wisconsin public service unions never figured out what was happening or why. To protest, unions resorted to the time honored practice of marches and demonstrations. Apparently union leadership did not recognize that much of Wisconsin voters did not understand why State employees should have pay and working conditions so much better than the average worker. Hmmm.

The Trans Pacific Partnership trade proposal is providing another example of unions out of touch with current times. Listening to union representatives crow about having defeated fast track authorization for President Obama, one can only ask, “tell me why again?”

Unions respond, “we want a better deal, one that preserves American jobs”.

At first this seems eminently reasonable. Why should the US make any trade agreements that syphon American jobs away? The problem is no deal does not prevent the economic migration of US jobs to lower wage countries. When that happens, Americans lose their jobs full stop.

European countries have instituted various types of labor protections should a business want to reduce local labor or even in the event of full plant closure. These countries impose a cost upon the business for each job lost. Part of the money goes to the worker and part goes to fund “retraining” programs. These costs make businesses think carefully about outsourcing or taking large risks which might endanger the businesses’ long term health.

(In truth it also encourages businesses to not expand employment until they absolutely must. Opportunistic employment, like we see in the US oil industry where many are hired when the sun shines and let go when oil prices fall, is not seen in Europe.)

The obvious first step for US labor is to begin dialog with businesses and acknowledge the high cost legacy pay and benefits represents to US business’ globally. Negotiating two tier wages and benefits has been tried in many situation and is worthwhile expanding. Businesses, however, would prefer to de-certify existing unions or block the certification of new ones. In that manner, businesses could hire and fire with impunity.  This behavior begs the need of Federal statues.

A longer shot but potentially more powerful would be for unions to shape public opinion especially around businesses who employ greedy hiring practices or give workers a poor deal. Think about the many consumer goods which carry special labels such as “sustainable”, “organic”, or “does not contain x, y, or z.

Consumers, therefore, should be capable of understanding that company X has reduced American labor, put the profit in their pockets, and given nothing to either the laid off worker or the consumer.  What should the consumer do?  Hmmm.

Disney recently began a practice of importing lower wage workers to replace home grown workers at their Amusement parks. While there can be no argument that replacing Americans with “better” foreign workers at the same pay and benefit levels, outsourcing work by importing lower wage workers seems over the top. And, what would Mickey Mouse say?

Of course not all workers are victims.  Anyone who observes government employees at city, county, State or Federal levels cannot help but notice that over the years these workers gain weight, slow down, and often get sick at very high rates. These are people to be sure but low productivity in the private sector results in business going out of business.

On one hand, blatant disregard for workers as Disney has shown should receive a public’s disapproval vote through lower attendance. On the other hand, unions truly interested in providing productive and competitive workers needs to work with companies on adopting new productivity tools and well as continuous worker training. If necessary, unions should insist upon adequate separation pay for displaced workers as well as funds for retraining.

Blocking the TPP and then blasting about it is a great disservice to union members and to the country as a whole.