THE BLOG
01/21/2017 12:40 pm ET | Updated Jan 22, 2017

Trump & The Insurance Game

Insurance is a complicated business; it sells protection so one could hedge against potential losses in the future. Insurance companies don't deny reality. They base their product on detailed programs and actuarial tables in order to assess the risks of future activities. Donald Trump's inaugural address was also based on protection but unlike the insurance industry, Trump was telling the American people that he could protect them from the future itself.

By repudiating globalization in his speech and then in eliminating the White House postings on global warming, Trump was more in tuned to the counter reformation of 15th and 16th century Europe than America in 2017; denying what is clearly evident. In its worldview his speech was not so dissimilar to view of the court that in 1663 found the Astronomer Galileo guilty for saying the earth turns around the sun. At his conviction, Galileo was reported to say, "But it still turns," and so it is with globalization, technology and global warming.

Politics is the art of perception. Ed Koch, the late mayor of New York, once recalled, while campaigning on the Coney Island Boardwalk in Brooklyn, an elderly woman who approached him and implored that he "make it like it was." America today is richer than it has ever been and is in the healthiest condition of any major global economy, yet many Americans don't see it that way. Like Ed Koch's elderly constituent, they want it to be like it used to be. And globalization gets caught up in that "used to be." Global economic growth is counterintuitive--people view global economics as a zero-sum game. If another country has grown wealthier, then it stands to reason that your country is now poorer.

The facts, however, tell another story. China has become significantly wealthier over the past forty years, as we all know, but so has the United States. In 1980, the United States had a gross domestic product of $2.8 trillion, while China's was only $302 billion. By 2014 the US economy had grown to $17.348 trillion, and the Chinese economy grew to $10.430 trillion. The US economy, as we can see, more than doubled during that period. Of course, China's rate of growth during the same time was much higher, but they had much more room to grow. China needed to build steel mills and highways, and to electrify their rural areas. The United States did all that a long time ago. The point is that the United States did not get poorer as China grew--quite the opposite.

Compounding the illusion that global growth is a zero-sum game is the reality that some people have lost their jobs to globalization. But the operative word here is some. In the political game of perception, Donald Trump has managed, with his attacks on China, Japan, and Mexico, to make globalization the simplistic scapegoat for most of the job losses in American manufacturing. However, as reported by Bloomberg two years ago, this was not the case then, nor is it the case now.

"The U.S. had become the second-most-competitive manufacturing location among the 25 largest manufacturing exporters worldwide. While that news is welcome, most of the lost U.S. manufacturing jobs in recent decades aren't coming back. In 1970, more than a quarter of U.S. employees worked in manufacturing. By 2010, only one in 10 did.

"The growth in imports from China had a role in that decline -- contributing, perhaps to as much as one-quarter of the employment drop-off from 1991 to 2007, according to an analysis by David Autor and his colleagues at the Massachusetts Institute of Technology. But the U.S. jobs slide began well before China's rise as a manufacturing power. And manufacturing employment is falling almost everywhere, including in China. The phenomenon is driven by technology."

Take for example all the people that used to make cameras and film in upstate New York; does anyone buy a Brownie camera or film anymore? Or look at companies that used to print newspapers and books that are now facing severe competition from e-readers.

And then there is the US automobile industry. In 2015 the United States manufactured 12,000,000 vehicles, double the quantity of the early 1950s, when there were no imports. Yet those 2015 production numbers were achieved with the same number of workers as in 1953, approximately 900,000. A key difference appears to be automation. In 2014, 58 percent of all industrial robots ordered in North America went to the automobile industry.

Rapidly declining employment in the coal industry is another example where technological change is the main factor, while climate change and now even China are being blamed. In a masterful but irrational readjustment of facts, Donald Trump once tweeted, "The concept of global warming was created by and for the Chinese in order to make U.S. manufacturing non-competitive."
The decline in employment in the coal industry is partly due to climate change, but the main culprit is innovation in energy production. Due to innovations in fracking, natural gas is not only now much more competitive for use as an energy source in manufacturing, it is also cleaner. Coal, like Kodak's old Brownie camera, is being innovated out of business.

In 1960, Harvard professor Theodore Levitt wrote an essay in Harvard Business Review titled "Marketing Myopia." In the essay, Levitt refers to the destruction of buggy whip industries due to the advent of the automobile. This analogy has now entered the economic lexicon. Although Professor Levitt's point was that if the buggy whip industry was attuned to their market they would have understood and re-adjusted to change, in terms of the employees there was a benefit in that change that does not exist today. The buggy whip employees found better jobs relatively easily in the rapidly growing automobile industry. The same could be said throughout that period in American history, when millions left the farm for the cities because they were able to find better jobs in various forms of manufacturing with relative ease. Change was not frightening then, because new industrial jobs replaced the old occupations.

The difference today isn't globalization alone; it is that change for many people looks frightening and not positive. In the age of human capital, industrialized economies--whether it's in the United States, Germany, Japan, or China--will rely less and less on manufacturing. The agility needed to go from factory work to the gig economy, or tech, or entrepreneurialism, or services, is much greater than it was to go from the buggy whip factory to the automobile factory. And instead of leading by proposing realistic ideas on how the government can help with that change, Trump is selling false protection, insurance against the fear of change.

Edward Goldberg is an expert on globalization and how geo-economic/political events shape our lives. He teaches international political economy at New York University's Center for Global Affairs. His new book, "The Joint Ventured Nation: Why America Needs A New Foreign Policy" shows why Donald Trump's concept of "Protection" from his inaugural address is historically wrong and extremely dangerous.

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