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Everyone knows we live in a brave new world of globalization.

And like a lot of things that everyone knows, it isn’t so.

Not only was the globalization of the late 19th century, with formal colonial empires spanning the world, just as profound as today, it generated a similar class of professional sophists to justify it all.

Think Thomas Friedman and his ilk are original? Think again. I just discovered a most amusing clip from the BBC TV production of Anthony Trollope’s 1875 novel The Way We Live Now, a startlingly modern satire of corrupt yuppies in Victorian London.

Everyone I know is in favor of trade done right.

Recently, I heard a congressman explain how investors interpret that.

From that perspective, trade is done right when the investor’s property is protected from capricious foreign governments who might snatch property. I think he meant Hugo Chavez or Fidel Castro — China, or maybe Peru. I got the impression that in 1917, Bolsheviks left a deep, traumatic scar on the collective investor psyche. But let’s walk through this, because I think it has a strong streak of truth.

Our congressman put this into context, saying it took America 200 years to act in the public interest while protecting business and property rights. When we build a freeway, we seize private property for the public good, then pay owners fair compensation. We regulate cigarettes, set emissions standards for automobiles and power generating stations, and we want assurance that drugs are safe and effective.

Our 200-year process found a balance between public and private interests. How? We had a strong civil society — an active free press, public advocacy, and political power in the hands of organized workers, environmental groups, and public health advocates. Our political process held elected officials accountable, at least from time to time.

Since we did it in our domestic society, the logical leap was that our trade agreements would produce a similar outcome. Done right, we could have clean air, clean water, good schools and roads, a strong middle class, stable political institutions, and investors could make lots of money. Globalization would be fine indeed, if we follow our domestic history.

Except we’re not.

Instead, global trade agreements go overboard in protecting investor rights. “Free trade” deals largely exclude public interest, devaluing the environment, labor rights, human rights, public health and financial regulation. The interests of global investors are elevated to top priority, and effectively decoupled from the public interests in every country where trade agreements operate.

Badly done “free trade” agreements shield global companies from domestic regulation. By the end of 2011, global corporations have launched 450 “free trade” challenges against 89 governments, including the United States.

• Chevron used trade dispute tribunals to shirk an $18 billion environmental penalty from Ecuador.
• An American multinational company used trade tribunals to challenge Quebec’s decision to suspend drilling permits while the province studied fracking.
• Global tobacco companies went to a trade tribunal to overturn an American regulation on cigarettes marketed to young smokers.
• Another trade tribunal is deciding whether Australia can require plain packaging of cigarette packs as a public health measure in the face of 15,000 smoking-related deaths per year and $30 billion in economic damage. (more…)

The recent Washington op-ed, What will replace the globalization model?, predicts: the political party that controls the White House after January could, four years later, be out of power for a generation. Not because of the fiscal cliff, but because of more the fundamental “far from sustainable trade deficits” or as the author puts it: “The globalization model of the past 30 years is cracking up.”

This op-ed is the lasted validation of Warren Buffett’s January 2006 Forbes quote, which follows: “The U.S. trade deficit is a bigger threat to the domestic economy than either the federal budget deficit or consumer debt and could lead to ‘political turmoil.’”

Our candidates in the debates have offered glittering generalities of “tax reform” and “more government investment,” assuming that America’s economic downturn is cyclical and that counter-cyclical remedies are the solutions. If the globalization model is melting down, the shift in world economic affairs is structural, like a “leak-in-the-dike” and therefore a new model is needed.

In fact, just such a model was proposed by none other than Warren Buffett in his November 2003 Fortune article “America’s Growing Trade Deficit Is Selling the Nation Out From Under Us. Here’s a Way to Fix the Problem—And We Need to Do It now.” If historians don’t fail us, in all likelihood they will find it unfathomable that the United States’ demise was, in no small part, due to the inaction of America’s political elite to a suggestion by its second wealthiest citizen.

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The NYT’s middle-class income series is back with an interesting list of the factors most commonly cited for the slump in median income in the U.S. (I posted a few initial thoughts about this series here). Though they left out a really important one (but you have to read this to the end to find out what it is).

Allow me to hold forth a bit on a few of the causes I think are most important (or less of a big deal). But first, one technical point: all of these causes are often discussed not in the context of slowing real income growth but in the context of increasing income inequality. It is implicit in the NYT series, I think, that aggregate income growth diverted from the middle class — a feature of growing inequality — is a “mechanical” factor leading to what they call the “income slump.”*

Automation or technological change. The culprits here, as stated in the blurb next to the cause, are a) “labor-saving” technology, like robotics, and b) today’s jobs demand more technical skills. “A” may well be in play but despite the fact that “b” is one the most commonly cited causes by economists, I’m a lot less convinced.

My hesitation can be summarized in one word: acceleration. It’s a key concept in all of this causal analysis. It’s not enough to cite a factor like tech change, demographic change, or globalization as something that hurts income growth. You have to show that this factor becomes more important over the period when incomes slowed.

Thus, you have to show that the factor became more prevalent, as in there was more global trade, faster demographic shifts, or in this case, a faster pace in the growth of employer skill demands. Or you have to show that for some reason, the steady pace of something that’s been going on forever, like technological change, has a bigger impact on income growth over the period when that growth slowed.

This is rarely done. When Larry Mishel and I looked at this in the context of wage inequality, we found no statistical evidence for acceleration, so we found it hard to blame technological change, something that’s literally been going on forever, as the cause of something new — increasing wage inequality.

I do, on the other hand, wonder if the pace of labor-saving technology, like robotics, has in fact accelerated, as you can read about here.

Globalization. Global trade provides a good example of what I was talking about above. Figure 1 from this paper — a paper that influenced a lot of people in this debate — provides clear evidence of acceleration in import penetration from China over a period when middle-incomes were slumping pretty badly.

The slowdown in education attainment. I’m concerned about this one for a lot of reasons, particularly in terms of diminished economic mobility, and particularly for kids from less advantaged economic backgrounds.

But I’m not sure how much of it has to do with the income slump. In fact, recent wage analysis suggest college workers’ real wages have also been a pretty slumpy of late (BTW: very important to focus on four-year college degree holders here — trends are different and more favorable for those with advanced degrees beyond BA’s).

There’s a bit of a “Say’s Law” fallacy to this part of the discussion — increase the supply of college workers and you’ll increase the demand for them.

Like I said, I’m not convinced. Which is by no means to say that kids shouldn’t go to and finish college. They should. But I’m not sure how much that will do to offset the income slump.

Fiscal policy/tax code (and more!). As much as I like to point out that GW Bush’s fiscal policy is a key factor in our past, current, and future budget deficits, the fact is that after-tax median household income has grown considerably faster than pretax over the recent slumpy period (as per CBO income data). However, don’t get too cozy with that result; we simply can’t count on middle-class tax cuts to continuously — year-after-year — offset the fundamental economic factors depressing middle-class income growth.

The figure below makes this case, and actually, a lot more cases. It’s a collection of different series — not all of which are as consistent as they should be — on real median household incomes, 2000-09, indexed to the first year in the series to make it easier to compare growth paths.

Source: Census Bureau and CBO (see text) (more…)

Recent stories about the conditions of Apple’s contractors in China have opened many people’s eyes about where our jobs, factories, industries and economy have been going, and why. The stories exposed that workers live 6-to-12-to-a-room in dormitories, get rousted at midnight to work surprise 12-hour shifts, get paid very little, use toxic chemicals, suffer extreme pollution of the environment, etc. Is this “trade?” Or is it something else?

Is This “Trade?”

“Trade” means to exchange, to buy and sell, you buy from me and I buy from you. I have something you want and you have something I want, and we exchange. We both end up better off than where we started.

Is it “trade” to close a factory here and move it to a country where people don’t have a say? It is “trade” to just move all of the machines from a factory here to a factory there, send the same parts and raw materials over there, and then bring bring back whatever it was the factory used to make and sell it in the same places here? Is that really “trade?” Or would another word be more appropriate?

When People Have A Say

When people have a say we insist on good wages, benefits, safe working conditions, and a clean environment. We even go so far as to say we want good public schools, parks and opportunities for our smaller businesses. When We, the People have a say we get so uppity and ask for the most outrageous things!

Efficiency vs. Humanity (more…)

Let’s look at public policies for economic development that help us recover from the recession.

In one view of economic development, the role of government is to “make business succeed.” In this view, government should get out of the way and let markets find the most efficient outcome.

An alternative view of economic development is that government policies should raise our standard of living. In this view, government plays an active role in devising trade and industrial policies that attract investment, build industrial capacity, and create good jobs that build the middle class. And make business succeed.

To be sure, markets are powerful and efficient, but markets fail. In particular, markets fail to serve non-economic interests — not just the environment, human rights, labor rights, and public health, but markets also under-invest in R&D, education, physical infrastructure and social safety nets.

Globalization has sharpened the difference in these two approaches, by de-coupling investor and business interests from the public interest. If investors are global in their outlook, then the interests of America dim from view.

In a global economy where national boundaries are blurred, we need to think about trade and industrial policies that work for America. A year ago, I mentioned 4 policies that would help reconnect the interests of investors with public interests and communities. Here are four more. (more…)

I opened up my Yahoo account when I got off work and was greeted by an article from the New York Times about how the State of California is outsourcing the San Francisco-Oakland Bay Bridge project to China.

Outsourcing has become an everyday occurrence. Big Businesses and governments like this tell our American citizens and workers exactly what they think about them every time a project like this is sent overseas. According to the article, the California government saved around 400 million dollars by sending our jobs overseas.

This type of action should be considered criminal.

The state of California contracted a Chinese company that pays their workers less than a dollar an hour, and works them for more than 100 hours per week to steal 3000 jobs from qualified and competent American Workers. Their safety concerns were so great that they had to ship 250 consultants, government employees, and contractors to Shanghai. (more…)

To learn more and take action, visit http://bit.ly/bbysLq.

In his State of the Union Speech last week, President Obama showed a new pro-business focus. Jobs no longer were  his number one priority. He didn’t directly mention the millions of unemployed once. But, isn’t business the biggest and best source of good jobs? To paraphrase an old saying: Isn’t what’s good for business good for America’s workers? Answer: It’s not necessarily so when it’s our multinational companies. They often put short-term profits ahead of domestic business and jobs by off-shoring  work that had been done here.

Since the dawning of globalization in the early 1970’s, a top group of America’s bankers and multinational companies has dominated U.S trade policy. They saw to it that the needs of some big domestic industries like textiles, steel, and consumer goods were frequently bypassed, supposedly to gain easier access to markets abroad for the multinationals. It turned out to be a destructive and wasteful over-reach that no other industrial nation adopted. Like them, the U.S. should have built on our own rich U.S. market, while also competing successfully overseas. (more…)

By Stan Sorscher
Labor Representative, Society for Professional Engineering Employees in Aerospace (SPEEA)

Last spring, a congressional staffer introduced me to a new expression. She said, “Our job is to make business succeed.”

My message to her had been that careers in science and technology were threatened as our economy de-industrialized. As manufacturing work goes to low-wage countries, the engineering and R&D jobs will go, too. American engineers and technical workers will have fewer opportunities for career growth. Already, engineering and science graduates compete with hundreds of thousands of foreign temporary high-tech workers for entry-level high-tech jobs. About half of all engineering and science students find work outside of engineering and science, when they graduate from college. Our policies are undermining high-tech workers in America.

She was gently explaining how I had missed the point. Her job was to make business succeed. I was worried about workers. Her priorities and mine did not match up.

I assume she meant large businesses, with very large PACs, who have more influence with congressional committees than I do.

Shortly afterward, US Commerce Secretary Gary Locke said it more artfully in a radio interview, “Our job is to make businesses succeed… so they can create good new jobs.” (more…)