Tuesday, March 8, 2016

Globalization and the Trumpaline

A trampoline is a thing you jump on. If you get really good at it you can do flips and all sorts of amazing gymnastic maneuvers. Right now everyone is jumping on Donald Trump so I thought I would jump on him too. Let’s call this a Larry Cannonball on the Trumpaline.

I will leave all the exciting stuff to other people and focus on the one thing that I think I know a little about – industrialization and globalization. Okay smarty pants – those are two things but in some ways they amount to the same thing because they are known to chew up jobs. Industrialization is a force that has been going on for centuries but it got a very hot reputation when it resulted in tractors replacing horses and plows. 

Ever since then we acknowledge that new technologies and innovations destroy jobs. Of course, we have also learned that while each significant industrialization phase creates its own destabilizing impacts the net result takes time and usually leads to not only more national employment but also higher wages and incomes.

Lauren’s great grandpa used to be the guy who blew out the candles in all the street lamps in Bloomington. Electricity knocked him out of work but that whole electricity thing also led to cool inventions like vacuum cleaners and blenders and pretty soon all sorts of people had great jobs as electrical engineers and bar tenders. If you take a big swig of JD, close your eyes, and think about your life you can easily think of all the labor-displacing inventions that caused similar disruptions but eventually came to be ho hum. I make light but these are no small things. When the textile industry abandoned the NE part of the US – it wasn’t very funny to those displaced by the invention of air conditioners that made work in the South more tolerable. Now we all say "yawl" and I "guarandamnteeit".

Most of us don’t fight industrialization very hard. We know it works. We like the fact that all those street lamps can be turned off with the push of one button and we like the fact that we can afford vacuum cleaners and bartenders. One of the reasons we have social programs is to try to make the transitions a little gentler. Helping those persons who become unemployed or otherwise disadvantaged by change is both good for the head and the heart. So we usually embrace change. Some of us love change but that is not necessary so long as society allows these transitions. The truth is in the pudding since not many of us are demanding a return to the horse and plow.

That brings us to globalization. Globalization is pretty much the same thing as industrialization except it allows us one more angle – the good guys (us) versus the bad guys (foreigners). Globalization is the same as industrialization because it does the same things – it creates havoc for some people while opening up avenues for growth and change for the rest of us. If a company closed operations in Indianapolis and reopened in Guadalajara Mexico you could hear the labor union and Donald Trump screaming all the way to the South Pole. How dare those blankety blanks leave Indianapolis to go to Mexico? They must be national traitors and they should be hung in the public square or in the Hoosier Dome.  Trump has made it very clear that he will make America great again by pulling all those companies back to Indianapolis and Detroit. Hillary Clinton is saying similar things. 

It sounds great. Let’s save American jobs. How can one argue with that? For one thing, it amounts to asking us to return to horses and wooden plows. Industrial transitions do not just occur in America. Now that dozens of countries are freer to compete in global markets the marketplace for change is everywhere. New ideas and innovations that improve our lives are developed and sold everywhere. To think that all that stuff would always be made in America does not make any sense. China will be the best place to make some items but even China is outsourcing output to Vietnam. Mexico will be a place of manufacturing for other things and they will outsource some of their supply chain to Chile. To think that Donald Trump or anyone else can or should fight globalization is silly.

For another thing fighting globalization means voting against change and the transitions that actually make American workers worth what they want to earn – close to $50,000 per year. We talk about greedy US companies who want to go to Mexico to take advantage of lower labor costs in Mexico. Now they are greedy. Yesterday and for how many years were those same companies employing American workers? Unions might complain about this or that but the truth is that many people raised families for decades because of the jobs offered by these companies. Were they greedy then? I don’t know whether they are more or less greedy today. What they are doing is fighting to succeed and in some cases to survive.  Competition across the globe is intense. To not change is to die.

So long as the average income of educated and/or trained workers in many emerging markets is less than $10,000 per year it is pure folly to think that US workers hired at $50,000 will offer the best place to do business.  To save the company and American jobs, a US multinational will move some operations out of the US. Of course to save the remaining jobs they will continually have to improve productivity of the domestic workforce or even the higher skilled jobs will be threatened. Think of wave after wave of enemy combatants coming after your defensive position. Building a bigger wall might work for a while. But what you really need is an advantage.

Trump vilifies other countries for trying to come into the global economy and for daring to compete with the USA. The only real solution to this challenge is not to regulate US companies but to unleash them. Making America great means American companies winning in the global marketplace. It means change and growth. Don’t tell me that centuries of US growth are over. Tell me we have a plan to empower US companies so they can do what is necessary to continue producing good jobs and incomes in America.  The world is not always a fair place. Making it even less fair isn’t the solution. We have so many advantages over emerging market competitors they are impossible to list. We should use them and quit bellyaching!


  1. Good column. I couldn't agree more. But the demonizing is working to distort the GOP and Democrats. I just hope there are enough informed people to keep us from a disaster.

    1. Thanks Mr. Yachts. The election is not over yet. It will be interesting to see how well demonizing works as we approach the finish line. Like you I am not hopeful.

  2. I just read a Guardian article that I think gets the story right. The pro Trump people are the people left behind in trade deals. http://www.theguardian.com/commentisfree/2016/mar/07/donald-trump-why-americans-support

    1. I don't believe it. Maybe they think they were left behind but there are not that many people who actually got left behind by any trade deal the US consummated.

  3. We may be informed but the majority of the voters do not understand the information. It is too easy to distort or even change the truth to fit one's needs. The Government does create jobs in the form of regulation which then requires regulators and consultants to help the private sector comply with the regulations. Big Choice: Another 4 years of Obama in the form of Hillary or a lot of the seat of emotion in the form of Trump or Cruz. Those are not choices and either one will continue this country on a path which has taken us to the inflection point we have never been .....in the greatness chart.

  4. Dear LSD. Both Donnie and Bernie stimmilate, excite the emoji of folks who feel left behind. Donnie’s folks feel the govomit has turned it back on them, want a more responsive govomit to fix immigration, retake yobs from China/Mexico, and take back the D.C. beltway; Bernie’s folks feel they haven’t gotten their fair share of candy and couldn’t care less ‘bout D.C. other than it smacks Wall Street. The Bern and Ds haven’t yak’d ‘bout yobs, understandably ‘cause when you got all that candy you don’t really want/need a yob. Besides, they’ll be weely smart from free higher ed, fat and satiated from the candy, and git free med/health stuff to fix their angst. Ah-h-h-h, Utopia finally.

    Good paying yobs would go a long way toward ameliorating both sides’ wants/needs, but the remedies for doing that are long term. And building walls, ripping up trade agreements, and bullying to make the world fairer won’t do it in the short term either.

    Centuries of U.S. growth are not ending, but this century will see a significant slowdown. The opportunity for a higher U.S. standard of living for folks in the 80% and below strata will forever be lower than for their parents due to globalization and competition with lower-wage countries: A mega trend long in the making and likely irreversible. Making ‘merica great in the global market place will need a govomit committed to less govomit, and regs, enforcement of international agreements, enabling/motivating more voters (e.g. citizens) to participate in the workforce, and a tax system (or elimination of one) that levels the burden to pay for govomit among all players and unshackles the creativeness to strengthen/regain our competitiveness. My belly aches from laughing about the possibility that will ever occur.

    With so many rules, regs, barriers imposed by nations, NGOs, institutions, et al it will be difficult to (re?)establish a global U.S. competitive advantage. But maybe those smart freely-edukated folks could harness the advantages you say we have too many list. BTW, our mothers said too much candy will give you a bellyache; so does too much govomit. Do you think those smart, free-edukated folks could rise to the challenge of (re?)creating U.S. competitive advantage yet be satisfied with a lower standard of living? Ya gotta manage expectations, ya know. Bring on the candy and let’s build that wall!

    1. Nice job Tuna. A future with slow growth allows folks to have a nice though static quality of life for a while but makes them vulnerable to anyone who disrupts the party. Of course they will squabble over shares of a static pie and will readily attack any outsider who dares to compete with them. The national past time will be seeing who next to blame.

  5. Larry,

    Looking for lower production costs is business 101. No question. Of course companies will ship jobs to Mexico to save money. Just look at Thompson Electronics that was in Bloomington for that example. I photographed the ceremony Thompson had when the 1 millionth Zenith color TV came off the assembly line. Bobby Knight was there, so was the Governor, the Mayor, hell they even had Lee Greenwood flown in on a helicopter to sing,”I’m Proud to be an American.” But a few years later, the plant was closed and moved to Ciudad Juarez. And it was done to lower production costs and save the company money.

    I agree with you that no candidate running for the presidency today can force companies to bring back manufacturing jobs to America. If they did, it won’t be on a scale that will make any real difference.

    But one of my biggest issues with companies complaining about production costs is, they never complain about upper management and CEO costs. When a CEO is making 400 times the average worker, maybe the company should ship the CEO job to SE Asia or Mexico to help reduce costs.

    If a CEO only made 3 million and year (plus stock options) instead of 8 million think what that company could have done what that extra 5 million.

    Yes, I’m sounding pretty socialists here. And I know there’s cases of CEO’s taking $1 in compensation but we all know this is just a tax dodge and they get profits and stock instead of salary. But it’s a problem or at the very least and issue. When my wife worked for a newspaper chain based in Northwest Indiana the company laid off 20 people on year but gave the CEO a million dollar bonus. What the fuck?

    And top brass of companies looking out for themselves and shareholders is finding new ways of manifesting short-tern-self-interested gain in corporate inversions.

    Don’t even get me started on golden parachutes, etc when CEO’s level a company regardless of how well a company is doing… contracts are important but only to the people in the corner offices.

    I learned a lot from my time living in Budapest and working in the Balkans but here’s the thing I really learned that US companies seems to have forgotten. If you have a fat, happy, and sizable middle class the ruling elites can get away with murder.

    1. Thanks Rob...all good points.First, elites get away with "murder" everywhere. They always have and they always will. The fiction that the Communist state will whither away so that the people will have their voices heard is on par with Santa and the Easter bunny. Power corrupts. Period. Second, I would rather have the market dictate salaries -- high and low. I realize corrupt forces interplay and mistakes are made but generally I think CEOs often get what they deserve. If a new CEO adds millions to a company's bottom line she should get her share. The line worker does not have the opportunity to add millions but the CEO does. Finally most firms do not relocate just to lower costs or to raise profits. These business decisions have to do with dynamics that change the locations of customers, regulations, shipping, sourcing various inputs, taxes, and so on. I'd rather have the CEOs making these decisions than Joe Biden. Notice that when Thomson left Bloomington they were one if not the last US TV manufacturer left in the USA.