The Golden Era
When WWII ended a new 800lb gorilla took center stage. It was called the United States of America. The industrial might of Germany, Japan and even the Empire where the sun never sets, Great Britain, were simply shadows of once great powers. The world had to be rebuilt and the United States was up to the task.
Soldiers returning home found opportunities galore. The GI Bill financed those who wanted to increase not only their education but also their work opportunities. For those who were more comfortable working with their hands jobs were plentiful. Whether it was a house, so desperately needed by the surge in marriages and newborns or the stuff to fill it such as appliances, furniture, heating, cooling, dishes, silverware, radios, everything had to be built. Cars were needed to take people to their jobs. Bars, theaters and amusement centers were needed so people could relax after a day’s labor.
The middle class swelled as did GDP and productivity. Rural boys and girls moved from the family farm to towns and cities where better pay could be achieved. It was a period of high employment, high profits and low inflation. An era of savings and an attitude of “If it’s not built in America it’s not worth having”.
College students went to job fairs and walked away with multiple offers. Everything from air transportation industries, interstate highways and even mainframe computers dictated American know how and American labor.
It was a period of space exploration and soaring military spending. We built things. We were in the forefront of technology. We considered it a golden era.
All Good Things Come to an End
In the early ‘70’s the American juggernaut of economic growth came to an abrupt halt.
Some will point to the collapse of the Bretton Woods Agreement in 1971-72 when President Nixon was completing the abandonment of the Gold Standard, originally commenced by FDR in 1933, and closed the Gold Window at the Federal Reserve. Others will point to the increased dependence on foreign oil and the oil shocks and embargo, in 1973 and 1979, as the culprit.
No matter the blame, the world’s engine of advancement came to an abrupt halt as productivity growth, when not negative, was small. Inflation and interest rates both exceeded 20%. Unemployment began to accelerate and the government experimented with wage and price controls.
By 1982, unemployment had risen to 10.8%, a post-war high. Manufacturing was shedding over a million jobs a year and Detroit got the first taste of off-shoring and foreign competition as the automotive workforce was reduced by as much as 1/3.
Reagan to the Rescue
The introduction of Reaganomics cut marginal Federal income tax rates by 25% and instituted physically expansive economic policies. The Federal debt tripled as it was rationalized that an expanding manufacturing middle class was worth the action.
By the end of Reagan’s Presidency, 20 million jobs had been created which were made up of 82% high paying and long term in nature.
Credit cards were booming and electronic devices for communication and entertainment were coming into vogue.
Income and inequality were increasing at levels we’ve never seen before. However, due to inflation, consumers could continue their buying sprees and cemented the feeling of perpetual prosperity. Unfortunately, this was simply giving a false reading of the health of the economy because “it was being paid for by taking on rapidly increasing levels of indebtedness thus covering up the stagnating wages and earnings of most of the workforce”.
As long as manufacturing continued to be the backbone of American society, this charade of growth would perpetuate. The moment that service became the mainstay then the demise of a once great nation was foretold. The North American Trade Association Agreement in 1993 (NAFTA) became the crossing of the Rubicon.
The Clinton Contribution
The North American Free Trade Agreement (NAFTA) was signed into law by President Bill Clinton on December 8, 1993. It took effect on January 1, 1994. A deal between the US, Canada and Mexico became a single, giant integrated market of almost 400 million people of $6.5 trillion worth of goods and services.
What seemed to be a free trade market idea of good intentions became the beginning of the end for the expansion of the middle class since WWII. Stagnant wages, upward redistribution of income, wealth and political power became the chief result of a flawed strategy.
Corporations were quick to seize on the chief cornerstone of NAFTA: the legal ability to relocate production elsewhere and “sell back” into the US. Simply put: production in Mexico and cheap wages and distribution in the US and Canada with high profit margins.
For three centuries Canada, the United States and Mexico have been trading goods and services with each other, therefore, the concept that NAFTA would somehow expand trade was misleading right from the get go. However, what it did do was set the standard for production of the most exciting and vibrant industry of all time, the internet.
The ‘90’s saw the United States once again in the forefront in a new industry, information technology. Silicon Valley became the place to be and work. The future for the American manufacturing laborer appeared bright as most assuredly “Made in America” would be stamped on every cell phone, pad and video player.
Unfortunately the success of NAFTA as the template for rules of the emerging global economy, in which benefits would flow to capital and the cost to labor was not lost on either Wall Street or Venture Capitalists of Silicon Valley.
When NAFTA was put into operation 700,000 jobs were immediately lost as production facilities for multiple industries moved to Mexico. Most of the losses came from California, Texas, Michigan and other states where manufacturing was concentrated. Those losses became permanent.
Unfortunately it seems small when compared to the number of jobs that were never created as off-shoring became the rule of thumb.
The so-called governing class “applied NAFTA principles to the World Trade Organization, to the policies to the world bank and IMF and to the deal under which employers of China’s huge supply of low wage workers were allowed access to the US markets in exchange for allowing American multinational corporations the right to invest there”.
Whether it is NAFTA or China there is no arguing with this simple fact-In 1970 more than a quarter of all US employees worked in manufacturing. By 2010 only 1 in 10 did. One could arguably say that this once great manufacturing power has simply become a nation of servers
longing for a return to yesteryear.
The End Game
Our discussion brings us to the here and now and of course the President’s Trans-Pacific Partnership.
In the early ‘90’s, a term was coined in the City of Rochester, NY, by a once great American Legacy company – Eastman Kodak. The term was downsized, used by one who got the pink slip, downsizing, by the one who’s handing out the pink slip. Thousands of Kodak workers found themselves in the crosshairs of a strategy that was meant to reinvigorate, reinvent and even save the Big Yellow Box. It didn’t work. Hundreds of companies have followed suit since then.
The dilemma of explanation was not Kodak’s but was the City’s Chamber of Commerce. With Xerox having pulled the plug and left town and now Kodak entering its death spiral how could the spinmeisters respond and continue to paint the Flower City as a living, breathing, growing entity. A place where people and businesses went to find a home.
The Chamber’s task was made easy by the community having a significant service economy that absorbed most of the pre-retirees. The numbers were simple. 20,000+ lost jobs, 20,000+ got jobs. The numbers proved out. All was well.
Unfortunately, the $75,000 Eastman Kodak Executive job became a $22,500 Walmart associate. The $45,000 line job became a minimum wage community parts job. But a job is a job. Since 20,000+ stayed in the workforce the spin was easy if you didn’t look below the surface.
It would appear that the BLS has learned much, not to look below the surface, from Rochester’s Chamber of Commerce as the most recent jobless report dropped to 5.4 from 5.5%. Unfortunately, the kicker is that over 93 million people are considered not in the labor force. As the unemployment rate continues to decline towards what is considered full employment, the number of people excluded from the participation rate continues to grow. 93 million able-bodied people without jobs – and growing. “We now have the lowest participation rate since 1977 when Jimmy Carter was President”.
We do have a growing sector of bartenders/waiters/waitresses that are now continuing to exceed the manufacturing sector demise.
The quality of job, the income derived or the temporary verses full time are all irrelevant as long as the numbers work to make headlines. “We created over 200,000 once again. The UE rate dropped to 5.4%. The markets were up over 300 points.” Hurray!
The last stake in the heart for a once great manufacturing society lies with the actions of the President’s most recent Trans-Pacific Partnership.
Let’s go directly to the office of the US trade representative and learn how they describe the Trans-Pacific Partnership (TPP).
“President Obama’s trade agenda is dedicated to expanding economic opportunity for American workers, farmers, ranchers and businesses. That’s why we are negotiating the Trans-Pacific Partnership. The 21st Century trade agreement that will boost economic growth, support American jobs and grow “Made in America” exports to some of the most dynamic and fastest growing countries in the world.
As the cornerstone of the Obama Administration’s economic policy in the Asian pacific the TPP reflects US economic priorities and values. The TPP not only seeks to provide new and meaningful market access for American goods and service exports but also set high standard rules for trade and address vital 21st Century issues within the global economy.”
TPP will be the largest free trade deal in the history of the Country. The irony is that most of President Obama’s backers, from liberal talk show hosts to the Unions, have awakened to the realization that the laws of economics will not be repealed and jobs will be lost. Whereas Republicans, backed by Wall Street, see a different outcome.
Currently cheap Pacific labor will entice manufacturing, much like NAFTA and Mexico, to redeploy to a lower cost environment. In addition, the US dollar strength will make American goods more expensive and exports will once again dramatically suffer.
The Economic Policy Institute predicts 130,000 jobs will be lost immediately to Vietnam and Japan alone. That is just the beginning.
Perhaps even more threatening is the give away favoritism to the multi-country corporations that seem to be the ultimate enemy to the ever shrinking middle class.
Much of the language of the TPP is hidden from view and is reminiscent of Nancy Pelosi’s classic “We’ll know what’s in it after we’ve passed it” in discussion of ObamaCare. Now apparently the shoe is on the other foot as Republicans look to “fast track” the bill.
Regardless, it would appear, that manufacturing will become something that is discussed around the campfires when people reminisce about the good old days.
Work will take on a whole new look, the BLS will continue to report the numbers without looking below the surface and the spinmisters will convince us all that simply dreaming of a job is the same as having one.
Till next time,