No One's Minding the Store

Henry Ford developed the middle class in America by doubling the minimum wage, providing health care and retirement benefits for his employees. We in public service trusted business to look out for the economy. After all, business knew how best to protect its investment and the nation's economy. As General Motors' Charlie Wilson said: "What's good for General Motors is good for the country." That's when business depended on the nation's economy.

Globalization changed all that. Now business doesn't necessarily depend on the economy of the country where it is headquartered. Globalization is nothing more than a trade war with production looking for a country cheaper to produce. Business now looks to the economy of the cheaper country, with GM, Intel, and Microsoft not only locating research and production but awarding community grants in China. The problem with the economy is that Congress has yet to cope with this change. We in Congress got so used to relying on Corporate America to tell us their needs; to tell us the needs of the nation's economy, that we forgot that the economy was -- not the responsibility of business -- but of the Congress.

Article I, Section 8, of the Constitution calls on Congress to regulate trade. Any hint of this responsibility is avoided by Congress doing what Corporate America counsels -- free trade, avoid protecting the economy. As Henry Clay said of free trade: "It never existed ... it never will." But all in Congress go along with the charade. We Democrats, particularly in the Senate, can repair a major flaw in our political armor by becoming pro-business, chanting "free trade," and doing nothing to have the nation compete in globalization. Investment, research, development, jobs, trade -- literally the economy -- follows production offshore. Congress has no idea how to do anything to stop the job loss from offshored production and strengthening the economy unless the president calls for it.

President Obama is talented, capable, and working hard, but he is inexperienced. It took me years in public service to learn of Corporate America's greed -- its lack of patriotism. I worked closely with business in the United States Senate, passing many a trade bill to protect its investment and production -- its jobs in country. But it wasn't until "on the road to NAFTA" that I was converted to learn of Corporate America's zeal for profit, which blinded them from the nation's economy. Today, Corporate America leads the opposition to any attempt by Congress to regulate trade or protect our economy.

Serving in the state legislature in Illinois and just two years in the United States Senate before running for the presidency, President Obama hardly ever debated trade or voted on trade. In the presidential race the nearest they got to a debate on trade was that NAFTA was a flawed agreement. But there was never any understanding or debate about the cause of offshoring. Everybody was for jobs, but no debate of the loss of jobs to offshoring, the real loss of the nation's economy. With Larry Summers in charge of the economy for President Obama, "mum" is the word on offshoring. Summers has just completed an appearance on Meet the Press to discuss the economy and jobs. Not a word about offshoring. Yet the Princeton economist, Alan Blinder, warned in February 2007 that in the next ten years the United States would lose thirty to forty million jobs to offshoring. When Summers was questioned on Meet the Press about a stimulus that was "supposed to create three to four million jobs when all is said and done," Summers never suggested anything to slow or stop an average loss of three to four million jobs to offshoring each year for the next seven years.

The eminent economist, Roger Lowenstein, in his recent article on jobs and the economy in the New York Times Magazine never mentions the problem of offshoring. Paul Krugman, the Nobel Prize economist, writes regularly about jobs and the economy, but no mention of losing an average three to four million jobs a year to offshoring. Businesses and their economists look upon offshoring as an opportunity not a problem. That's because anything that can be produced cheaper offshore from the United States is bound to be offshored from the United States -- including research, software, law work, accounting work, and heart transplants.

Economists, like us politicians, respond to the problem of offshoring with the old axiom of "whose bread I eat, his song I sing." Economists rely on the shibboleth of David Ricardo's "comparative advantage" in international trade of productivity -- "English woolens and Portuguese wine." Today, in globalization, government is the "comparative advantage." China's government protects and controls not only its labor, but how many babies in a family, and one's religion. To talk of "free trade" when China protects and controls everything is fanciful. China's government even offers incentives to invest and produce in China. China, protecting its economy, has become the superpower in the trade war as the United States refuses to protect its economy and remains AWOL in the trade war. Our country has so many problems and so many wars that President Obama is not going to confront the problem of offshoring by getting the country into another war -- especially a war that his economists won't even admit is going on. No one in Washington is minding the store.

Globalization is grand for profiteers. But it could leave our nation unable to defend itself. The Harvard Business Review reports that items needed for our national security, such as light-emitting diodes, flat-panel displays, and carbon-fiber components of fighter planes, no longer are produced in the United States. The nation's defense should never depend on the favor of a foreign country. Worst of all, the Summers plan for the economy of consumption is working -- except most of what's consumed is imported. To create jobs, one must first create production.

We're well on the road to becoming a banana republic. If the United States is to remain a superpower, we've got to come in from the cold in the trade war and pass the stone of industrial policy. We have an industrial policy for domestic trade with provisions for interstate commerce, a minimum wage, anti-trust, price-fixing, etc. Now we must move deliberately into an industrial policy for international trade. Bit by bit, we can incrementally protect not the total production, but the basic production on those items necessary for our national security such as guns, airplanes and automobiles with tariffs and quotas. The nation's manufacture of automobiles permitted President Franklin Roosevelt to have Detroit manufacture the tanks and planes for World War II. To stop the offshoring and save the economy, we need to immediately replace the corporate tax with a 5% value added tax. A 3% VAT is more than tax-neutral with eliminating the corporate tax. Two percent more will pay for health costs with exemptions and eliminate deficits rather than increasing them. But the public must appreciate the problem of offshoring and its solution before Congress will move.

As Adlai Stevenson said, it is time to talk sense to the American people. We already have government health care and are rationing health care in the United States. The government provides Medicare for the senior citizens; Medicaid for the poor. The government subsidizes health care for business. The government provides health care for the veterans. And the "free market" rations health care from children and working America that can't afford it. The debate should be on how government can better provide and ration. Once and for all, let's do away with outmoded ideas about "protectionism" and "free trade." The fundamental of government is to protect. Our nation was founded on protectionism. And enough of this trade charade of entrepreneurship and innovation -- windmills and diploma mills -- educate, educate. We're producing a BMW in Spartanburg, South Carolina, of equal quality as one produced in Munich, Germany. In fact, Intel used South Carolina's technical training program to get its Dublin, Ireland, plant up and running. The educated and skilled in the United States are without jobs. It's the president and Congress who need to be educated.

The Congress must make it profitable, once again, to produce in the United States. Our task is to make business patriotic -- to help, instead of opposing, the rebuilding of our economy. Our task is to compete in globalization.

Comments

[swamprat73]

Great article by Senator Fritz Hollings. I am a libertarian conservative, however, this is somethings that all people who call themselves Americans hyphenated or otherwise need to organize around. Politicians in both political parties (especially Republicans) have literally sold our country down the drain. Free trade and globalization has been at the core of the economic crisis. Real household wages have declined 25 percent since 1973. Factoring in the fact that an increasing number of households have more than 2 people working, the As incomes have declined, people have been forced to buy imported goods and eventually, borrow huge sums of money to maintain their standard of living. As a result, many people have been caught in an never ending cycle of borrow and spend.

It is clear that Republican ideas such as tax cuts only provide temporary relief. If they were the solution, we wouldn't have been through 4 recessions since 1981, right?

Let's get together and demand that our representatives pass the TRADE ACT (HR 3012) that will force the government to report and then renegotiate NAFTA, the WTO and other trade agreements we find ourselves in. It won't solve our problems, but it is a first step.

Hollings is 100% correct. protectionism is not a dirty word and it is what we should be doing.

[ElementalPraxis]

Thank you for the excellent history.

My one paragraph history of globalization:

Americans pay compound interest on debt-backed money supply that uses their own labor as collateral, hijackers of monetary system use compound interest payments to export America's manufacturing capacity overseas.

[DavidJames]

Senator Hollings,

I greatly appreciate your posts.

Regards,

[KC the SuperDog]

Just read this article in the NY Times online, about how many of our college graduates are heading to China, the land of opportunity "New Graduates Finding Jobs in China (Mandarin Optional)" ...

http://www.nytimes.com/2009/08/11/business/economy/11expats.html?ref=business

So sad, but I can't blame them. Something drastic and DIFFERENT needs to happen. I say put the Health Care issue on the side for a while, it won't matter if everyone is unemployed (we'll all be on Medicaid, if that doesn't go bankrupt).

[KillTheMessenger]

Did you notice how many Chinese graduates were coming to the US when we were still the nation with the highest effective R&D spending in the world?

Today you can get way better science funding in China than around here (real geniuses excluded). For the average scientist there is way more opportunity over there right now. And that's not that much different for engineers and management... they are growing like crazy, we are not.

[marinara]

I don't like the idea of the government running everything, but I agree we have to do something. Thank you for the blog, Senator.

[Roy Lawson]

Senator Hollings: what's good for IBM is good for ... India.

[outnow]

Corporate America is motivated by primarily by greed. Adam Smith was an apologist for British Imperialism. "Free trade" is just another imperialist doctrine. With a billion people in China willing to work for less that one twentieth of the prevailing wages for organized labor, who do you think would win that fight? A good example is the collapse of the Egyptian cotton trade and the massive debt piled up. Hey, the imperialists had to grow cheap cotton after the Civil War while things were in still in a state of collapse in the South of the US. But when the domestic cotton production started again, Egypt was left out. International financiers call the shots. It's all about creation of debt and cheap labor.

Most industrialists were looking at Asia for cheap labor in the Sixties. By the 70's, Nixon and Kissinger were preparing the final nails in the coffin for the American Worker. All we have done is make China the new slave headquarters. The savings were not passed along to the American worker. Nor did technology's savings get passed along in reduced hours past the point of the 60's. Protectionism is just another attempt at making fair trade a dirty word.

[kittyarmy]

Well said. Thank you for your post, Sen. Hollings.

"It took me years in public service to learn of Corporate America's greed -- its lack of patriotism."

That was the bit that got me. We always hear about how "unpatriotic" it is to oppose free trade and to be in favor of appropriate regulation. In a curious reversal of the old "biting the hands that feed you" adage, we now see people so willing to lick the hands that choke them.

[POSoA]

In the area of Trade, the "Lowest Common Denominator" will always prevail, be it labor rates, environmental protection, etc. It is the way free enterprise operates in a competitive environment. When one competitor lowers their cost by offshoring all the remaining competitors are forced to follow suit or go out of business.
In a country like India where the poverty level is 90%, the cost of living is low because unskilled labor rates are near starvation level. For example, a programmer in Mumbai India earning $25,000 enjoys much the same standard of living as a programmer in Houston earning $80,000. Poverty becomes a competitive advantage.
There is no way the structural poverty in most low cost countries will change in our lifetimes. What is changing is the growing number of skilled people in this country without job opportunities to use their skills. Eventually these skills will be lost and the skilled workers will join the ranks of the unskilled, raising our own poverty level.
We need to act today and act decisively if there is to be any hope of avoiding a future of high poverty in this nation. Trade restrictions are the primary vehicle for this action. Let's call it Protectionism because we need Protection lest we someday become the Lowest Common Denominator in a world that has taken all the infrastructure, technology, and skills that were once ours.

[vippy]

As you said "we, in congress, relied on corporate America to tell us their needs" and that what brought the country down! Sooner or later we won't have a country, not worth defending, for there is nothing for the little man! And then, sooner or later, we won't need a government either. It all has consequences.

[KC the SuperDog]

Senator Fritz... you are brilliant. You took a rather complex subject and spelled it out eloquently and compellingly. We should also make sure that companies that materially and massively offshore - particularly in the current economic crisis - do not receive any stimulus or Federal government work.

For example, at IBM in 2002 there were 240,000 US employees = 80% of it's Global workforce. Offshore jobs have reached 283,000, or 71% of IBM's 398,000 total. The US workforce has shifted from 80% to a mere 29%. And IBM isn't done offshoring - per yesterday's article in ComputerWorld, IBM has laid off 10,000 US workers this year, estimated to grow to 16,000. A recent Wall Street Journal article titled "As Slowdown Drags On, IBM Looks to Governments for New Growth " - the article does a great job of spelling out why un-patriotic, profit-hungry companies like IBM should be banned from Government work and rewards.

Now all you need to do is get your speech out to main street press, then into the Big House of Congress.

URL's to those articles:
http://online.wsj.com/article/SB124891414229992099.html

www.computerworld.com/s/article/9136360/IBM_union_Layoffs_could_hit_16_000_by_year_s_end

[themodernleader]

Senator Hollings, you rightly predicted years ago that the textile industry and one industry after another would be destroyed with free trade. Your predictions have come true.
This country is being led by leaders who see American Free Enterprise as the freedom clause of the Constitution as they engage in betting American wealth on arising economic and military powers over the needs and interests of the American people. These leaders are willing to destroy our country for a specious principle of "free trade" , actually modern mercantelism with America on the colonial function..
Masking our national peril with more money for an educational bureaucracy to teach archaic and other useless knowledge while our counntry and competence is subsumed by more prudent nations is our pathetic solution in addressing a dying economy and country.
Thank you, Senator Hollings for bringing to our attention once again the causes and salient solutions of a failing organization. In a more egalitarian age your words would have mattered.
Our folly, I believe is more rooted in concentrated monopoly and weath than in the impudence or selfishness of Americans. But the Americans no longer govern themselves. What we think has no influence on the desolate future we and our descendants face. Self government is the real loser of fanatical and self-serving policy of corporations, inherited wealth and political power.

[therealredstateblues]

Another gret Post Sen Hollings

we are indeed AWOL in the trade war

we hear the opponents of fair and sustainable trade howl about protectionism and worry about trade wars, yet we are already in one and not winning. the damage has already been done so any measure of protectisim can do no harm

along with a VAT we should do an export rebate like other VAT charging countries do.

lets take a look at the so called benefits of globalization shall we

increased energy demand
accellerated environmental degredation
reduced product quality and safety
reduced consumer choices
increased intellectual property theft
loss of productive capacity
eroded innovative and technological edge
reduced national security
increased illegal immigration
stagnant and declining wages

[joebaggadonuts]

Senator.

Thanks for stating these important things here in this public forum where your actual words cannot be shouted down. It is a privilege of a functioning democracy to be able to see them and have the opportunity to weigh them and use them for our service and the service of the country.

I agree with your statements but would prefer if you would slant them slightly differently. The "economy" doesn't matter a damn if the people are not part of it. It's not really a war but an occupation by global corporations. The war that needs fighting is the one that raises people up above ideology and above greed for money and power.

That China's interest is to raise it's people's average economic value is an interest worth noting. That we should not let them do it solely at our people's expense and at the expense of the global environment which sustains us all is also worth noting, and worth fighting for.

I do hope Obama listens to you, and to me, as we are down about 10 million jobs since Blinder made that prediction with another 20 or 30 million more to go.

Thanks again for your service.

[therealredstateblues]

Amazing that the repressive communist regime is more interested in the welfare of its people than the "democracy"

[mgloraine]

I agree with Sen. Hollings' observations and analyses, but it looks like we will have to elect a different president if we want to change US trade policy; Obama and his appointees are all 100% hardcore Chicago School neo-liberals who worship the mythical "free market". Not one of them will lift a finger to slow down the offshoring craze, because they are all courting corporate payola and will go to any lengths to avoid the "protectionist" label.

We've all got to get over the idea that our elected politicians are making any effort to "help America" when it is painfully evident that their only real goal is to make themselves rich, regardless of the impact to working, taxpaying Americans (who are typically unable to send in thousands of dollars for "campaign contributions" to buy their representatives' representation). Corporations get every whim indulged while citizens get robbed of their livelihoods. That's the way Obama wants it. There will be no change while he occupies the White House.

We'd better start looking for an ACTUAL progressive, or liberal, or socialist, or whatever, who has a genuine interest in making America a good place to live for those of us who are not billionaires or their servants.

[philko]

Nice sentiment. How do you propose that any such candidate get even close to the final round in the Presidential election slugfest?