How Trump's Rust Belt Racism Impedes Its Economic Growth

“H.G. Wells said that civilization is a race between education and catastrophe. Even more than that, though, civilization is a race between innovation and catastrophe.” –Michael Specter, Denialism

Donald Trump won the 2016 election by appealing to the frustrations of the Rust Belt, where unemployed Americans felt left behind by the new economy.

These citizens of Middle America have every right to be angry – Democrat and Republican presidencies, led by Ronald Reagan, abandoned them, their unions, and their livelihood for Corporate America and its multinationals. The free trade policies of the '80s and '90s helped usher in globalization and drove most of their jobs overseas.

As Bernie Sanders frequently states:

“Since 2001, nearly 60,000 manufacturing plants in this country have been shut down and we have lost over 4.7 million decent paying manufacturing jobs. NAFTA has led to the loss of nearly 700,000 jobs. PNTR with China has led to the loss of 2.7 million jobs. Our trade agreement with South Korea has led to the loss of about 75,000 jobs.”

Other sources believe the loss of US manufacturing jobs may be closer to 5.5 million.

America is no longer the superpower of production it once was. But don’t blame excessive taxes, regulation or high labor costs, as Republican Congressmen often do.

Recently, MIT assembled a panel of experts in economics, technology, business management, political science, and other disciplines to mount an exhaustive study on this demise. Here’s what they discovered:

It was the myopia of the U.S. industry, the refusal to sacrifice short-term profits in the interest of long-term investment in plant and equipment. The commission also faulted American business for not responding to the needs of customers...The commission found that most of the American firms had lost their competitive position because of poor decisions by executives, not because of macroeconomic factors like taxes and regulation…Perhaps most important, the commission concluded that the Reagan administration’s encouragement of mergers and rampant speculation was feeding into exactly what was wrong with U.S. industry…its tendency to favor short-term horizons...is part of the problem, not part of the solution.

And the unsubstantiated claim that immigrants are stealing our jobs is another conservative myth exploiting racial bias. The truth is that immigrants are performing the jobs we can no longer afford to do, like housecleaning, childcare, and yard work.

That didn’t stop Trump from using such misinformation to fuel unwarranted racism and lift the 50-year-old veil of dog-whistling, coded language tactics that employ race-baiting, xenophobia, discrimination, and more. Once limited to Republican subtext since the Civil Rights Movement, Donald Trump, not schooled in the subtleties of politics, elevated these prejudices into open campaign text.

As a result, America welcomed back the KKK, is witnessing a white nationalist movement, has seen an uptick in hate crimes, and increasing persecution of minorities and immigrants.

Not only does this indicate a huge step backward for social progress, it mires Middle America in unnecessary bigotry.

This intolerance to diversity is in direct opposition to economic growth.

Any hope of joining the new economy was undermined by Trump’s campaign strategy of race-baiting and fear mongering. By the very act of voting for Trump, the red states also sealed their economic fate.

There is a reason why technology, biotech, social media, renewable energies, and other new industry is limited to the East and West Coasts.

New ideas come from cities founded around colleges, institutions, and communities of free thinking, i.e., cities that are highly liberal and tolerant of diversity.

Think Silicon Valley in the Bay Area, or the entertainment industry in Los Angeles, or MIT in Boston, or New York, Austin, etc.

Wonder if your own city inspires creativity?

How many tattoos, piercings, nose rings, and alternative clothing can you spot on the street?

How many different ethnicities, races, and mixed-race kids frequent the park?

How many gays, lesbians, and transgenders frequent your local coffee shop?

More importantly: how do people respond to them?

The more open an area is to different kinds of people and ideas, the more likely it is to foster innovation, discovery, exploration, and invention.

Richard Florida, a social and economic theorist specializing in urban studies, explains in his groundbreaking book, The Rise of the Creative Class:

“The key to economic growth lies not just in the ability to attract the creative class, but to translate that underlying advantage into creative economic outcomes in the form of new ideas, new high-tech businesses and regional growth.”

Florida, cofounder of CityLab and senior editor at The Atlantic, discovered that it wasn’t just important to attract skilled professionals, but that cities needed to foster a receptive attitude toward diversity.

Technology, talent, and tolerance – the 3 T’s of economic development – explain why so many new businesses emerge from liberal areas. This is why California’s the sixth largest economy in the world.

Consider the locations of Forbes’ 2016 Top 10 Most Innovative Companies:

• Tesla Motors (San Carlos, CA)

• Salesforce.com (San Francisco, CA)

• Regeneron Pharmaceuticals (Tarrytown, NY)

• Incyte Corp (Palo Alto, CA)

• Alexion Pharmaceuticals (New Haven CT)

• Under Armour (Washington, D.C.)

• Monster Beverage Corp (Corona, CA)

• Unilever (UK)

• Vertex Pharmaceuticals (Boston, MA)

• BioMarin Pharmaceutical Inc. (San Rafael, CA)

Consider where today’s other most influential companies are located:

• FaceBook was founded Cambridge, MA

• Apple was founded in Cupertino, CA

• Google was founded in Menlo Park, CA

• eBay was founded in San Jose, CA

• Amazon was founded in Bellevue, WA

• Starbucks was founded in Seattle, WA

• LinkedIn was founded in Mountain View, CA

• Netflix was founded in Scotts Valley, CA

• Hulu was founded in New York, NY

• Airbnb was founded in San Francisco, CA

• E-Trade was founded in Palo Alto, CA

• Uber was founded in San Francisco, CA

Not to mention Pixar, Microsoft, Adobe, Electronic Arts, GoPro, and Industrial Light & Magic, all on the West Coast, or Dropbox and iRobot (maker of the Roomba), founded by MIT students.

In order for companies like this to emerge, open-mindedness is required.

New ideas require a climate where science is respected (i.e., no global warming denial), where education is valued (No thanks to Rick Santorum), and where cultural and sexual identity is a non-issue (ditto). This is why California is the antithesis of everything the Republican party stands for, much to their own - and the nation’s - detriment.

America needs innovation - and new companies.

Kauffman Foundation and the Institute for Competitiveness & Prosperity recently discovered a surprising truth:

Over the last twenty five years, almost all of the private sector jobs have been created by businesses less than five years old.

In this day and age, established companies do not create more long-term job growth. In fact, it’s quite the opposite:

For all but seven years between 1977 and 2005, existing firms are net job destroyers, losing 1 million jobs net combined per year. By contrast, in their first year, new firms add an average of 3 million jobs.

“Policymakers often think of small business as the employment engine of the economy. But when it comes to job-creating power, it is not the size of the business that matters as much as it is the age. New and young companies are the primary source of job creation in the American economy. Not only that, but these firms also contribute to economic dynamism by injecting competition into markets and spurring innovation.”

Competition is good. Lack of competition is why so many jobs are underpaid. And we are in desperate need of better paying jobs.

As the economy has transitioned away from manufacturing industries and toward service industries, the pay and quality of jobs have changed as well…Feeling pressure from foreign competition, many companies slashed manufacturing jobs permanently. As a result, many of the high-paying blue-collar jobs were no longer...On top of that, unions began to disappear and the minimum wage lost ground against inflation, leaving young workers without college degrees in a serious pinch.

The disastrous consequences of systematically pursuing shareholder value...in current stock...has led to pervasive short-termism, which hampered the capacity to compete on a sustained basis in international markets; diverted human and financial resources from needed investments in innovation; dispirited both employees and managers leading to pervasive disengagement; generated “bad profits” that undermined customer loyalty; caused excessive “financialization” of the economy, making it vulnerable to increasingly severe financial crashes; undermined the economic recovery from the Global Financial Crisis; drastically reduced rates of return on assets and on invested capital; appropriated gains that flowed from workers’ improvements in productivity; and led to secular economic stagnation and increasingly unsustainable economic inequality.

As Richard Florida explains in Rise of the Creative Class - Revisited: Revised and Expanded:

The old order has failed; attempts to bail it out, to breathe new life into it or to somehow prop it back up are doomed to history’s dustbin. The key is not to limit or reverse the gains that the Creative Class has made but to extend them across the board, to build a more open, more diverse, more inclusive Creative Society that can more fully harness its members’—all of its members’—capacities.

If the Rust Belt - and Middle America - hopes to have an economic future, it must first embrace the country’s growing diversity. And not be manipulated into resenting it, fearing it, or fighting it.

Unfortunately, Trump built a movement from doing just that. As a result, intolerance has returned to the heartland.

As the country remains divided by these racial lines, it will also remain divided between coastlines of today’s industry, and a Rust Belt of yesteryear’s.