My Grandfather's Job

I promise I'll leave poor Ian Bremmer alone soon, but couldn't help noticing this Tweet of his from a few weeks back:

If TPP passes, @EurasiaGroup will add 10 US jobs. #GoBigOrGoHome

— ian bremmer (@ianbremmer) May 9, 2015

On the scale of national policy, of course, 10 jobs is nothing, not even a blip.  A bliplet.  But Bremmer's Eurasia Group is a relatively small, narrowly-focused consulting firm.  If the increased volume of trade and investment attributable to the Trans-Pacific Partnership will give him cause to add 10, how many will McKinsey add, and +Deloitte, +PwC, +KPMG,  etc.?  To say nothing of the banks.

And even though all of them together may only number in the thousands, still a paltry total in the context of the entire economy, increased trade is about two things: 1) real people, and 2) ripple effects.  However many (or few) jobs are created by trade policy, those jobs are opportunities for real people, often young people who've just graduated with a very, very expensive professional degree, and who had previously been staring down the barrel of student loan defaults; defaults which would damage their credit and thus close them out of housing and new car markets for years, depriving those sectors of new customers, growth and cause to make new hires of their own.  In such circumstances demoralization quickly segues to a permanent lowering of expectations, and a generation of talent disappears into bleary mediocrity.

The answer is sure to come that this is all very dramatic, but that it pales in comparison to the hundreds of thousands if not millions of middle-class manufacturing jobs lost over the last 40 years or more.  Fair enough.  But the truth is that those jobs were not lost because the U.S. signed free trade and investment treaties.  Rather, free trade and investment treaties were signed because both U.S. companies who'd begun to manufacture outside the U.S. and U.S. consumers would benefit if the products now being made in Latin America and East Asia could be imported into the U.S. at lower costs.

To reiterate: jobs didn't follow free trade overseas; free trade followed logically when manufacturing moved out of the U.S. for its own reasons.  And in most cases, when the FTAs did follow, they did so either with countries of minimal impact for U.S. labor, or very late in the game, well after the exodus of manufacturing -- one of the oldest U.S. FTAs is with Israel (29 years), hardly a mass destination for formerly American-based jobs, and the so-called DR-CAFTA (Dominican Republic - Caribbean Area Free Trade Agreement), encompassing much of Latin America, didn't come into force until 2006.  As I pointed out in a previous post, the lodestar of cheap manufacturing is China, and we have no FTA or investment treaty with China.

In the end, the simple fact is that manufacturing jobs are gone from the U.S. (with the slight caveat that lower utility costs in the U.S. resulting from the availability of unconventional natural gas and oil supplies may be making America an attractive destination for some manufacturers in high-cost regions such as Europe).  And even if those jobs were to return, they would neither be nor support the kind of upper-middle and middle class jobs that my grandparents' generation knew.  My grandfather, a WWII B-17 pilot with a business degree from Northwestern, raised five children more or less comfortably as a regional manager for National Cash Register (NCR, later bought by AT&T), a company which made and sold cash registers to the American retail sector.  The 21st century equivalent of his job has nothing to do with manufacturing or selling anything to America's retailers.  It has to do with the kind of analysis done by international firms in the financial and service sectors.  These new jobs pay a lot better than his did.  There just aren't enough of them.  Yet.  But if we can generate more of them through intelligent trade policy, isn't it all but a moral necessity to do so?

And, Just for the Hell of It, Part III of the Free Trade Trilogy

The textbook defense of free trade (and investment):

Making it cheaper and easier to sell more U.S. goods in another country, say, for example, Vietnam, means that more U.S. goods are likely to be sold there.  Leaving aside entirely the question of hiring more people to manufacture these increased numbers of goods, it's clear that if more U.S. goods are to be sold to Vietnam, U.S. companies will have to hire more salespeople to sell them, more accountants to keep track of the revenue, more lawyers to ensure regulatory compliance and settle disputes; they will have to buy more shipping and insurance services, which means that shipping and insurance businesses in the U.S. will have to hire more salespeople, accountants, lawyers, and so on, in the loveliest of virtuous circles.  And remember, this pattern holds, even if the increased sales to Vietnam result in zero U.S. manufacturing hires because the goods themselves are manufactured in China, or Indonesia, or Malaysia, or wherever.  Furthermore, even if the new goods are manufactured in China, that means that more Chinese firms and workers are making more money which they can spend on U.S. goods and services.  Apple sells more iPhones in China than in the U.S.  Which means Apple can hire more product designers and software engineers (and lawyers and accountants, etc.) at its  U.S. headquarters.  Chinese manufacturers are huge consumers of the accounting and consulting services of U.S. firms.   And so on.

Now, one place where this virtuous cycle breaks down is in the scale.  Even a significant uptick in sales in Vietnam (again, just an example) for any given company (or sector) resulting from a free trade agreement, might well result in the hiring of one extra lawyer here, or a couple more accountants there.  Efficiency and replicability mean that industries like insurance might absorb large increases in sales to existing clients with practically no new hires at all.  And if the new sales are taking place in Vietnam, then the new sales force may well be almost entirely Vietnamese, with only one or two new Americans to supervise and train.  Hence the trend that has so bedeviled the U.S. economy since the recession: increased profits accruing primarily to already wealthy shareholders, with no meaningful increase in wages or jobs.  And this after the scale of job loss over the previous decades due to overseas manufacturing was so vast.

For better or worse, though, the golden age of American manufacturing, during which factory wages were sufficient to sustain families in a comfortable and culturally/politically relevant middle class, is not coming back any time soon.  The problem of coming to understand new models of economic stability and social cohesion is one that we're going to have to solve without resort to the crutch of nostalgia.  We have to use the tools we've got, and whatever its imperfections or inadequacies, free trade and investment, on the model above, is one of those tools.

Yet finally, I feel compelled to end on a fatalistic note.  In all the hubbub, all the current sturm und drang over trade (and investment) policy, it should be recalled that commerce, a human institution, will find its way, will seek its own ends and move by its own logic, no matter what.  The U.S, after all, has no free trade or investment treaty with China.

More on Free Trade

Such a dense topic, the politics of international trade and investment -- I feel like I want to follow up on sixteen different things from yesterday's post.  But, other fora, including the Daily Beast, and the Washington think tank Third Way, are addressing this hot topic, and doing it well.  So forgive me if I indulge in my usual abstruse, airy ruminations.  Start with this, the human...imperative, let's say (as opposed to right, which is too concrete, and legal and implies enforceability) of free trade and investment:

While prudence and discretion dictate that I not discuss my circumstances extensively, I can say that I'm in a position to make certain demographic observations about cross-border trade and investment in one of the most robust international commercial relationships in the world.  And right away, let's note -- this is a decidedly demographic enterprise.  Yes, of course, goods cross borders, in massive, almost incomprehensible quantities.  That's a large part of what trade is (trade in services being the other part).  But in conjunction with and in addition to goods, people cross borders.  Many of them, true enough, work for large corporations, and are moving from one financial services office to another, without a critical quotient of risk, excitement, or personal meaning involved.  But many of them, so many, surprisingly many, are individuals, single men and women, brothers or sisters, families.  These are people who arrive with, if not quite a song in their hearts, at least a little start-up capital, and something like the conviction that their best selves will be expressed in (or at least enabled by) a restaurant in a warm climate, a factory where technical workers are well-trained, a sales office where markets for their product are expanding.  Etc.  Their vision and willingness to take risk, it's...it's...Vitality!  Dynamism!  The fullness of human intercourse! 

Biff!  Bang!  Pow!

Look, I'm not an idiot.  I know I'm pushing this conception to its limits, perhaps beyond.  Nor am I insensitive to the reality of crass exploitation in the world of international business.  Or to the seismic rearrangement of the U.S. economy over the past 40+ years of globalization.  After all, I spent years -- years -- after law school and a Fulbright fellowship, with no hope whatever of even the most paltry, entry-level professional job.  I understand better than I'd like to how devastating an experience it is not to be needed, to feel like a superfluous person.  And I understand as well how many people in the U.S. (to say nothing of Spain, or Greece, or, by the way, Africa) have gone through and are still going through that experience.  I get it.

But arguing that the solution to this difficulty is to abolish free international trade and investment is like arguing that we must address communicable diseases by legislating against physical contact.  While it may seem to offer immediate protections, it is both impossible, and ultimately undesirable.  We are humans, and we have to touch each other.  And commerce, international trade and investment, is how we touch each other now.

Maybe that's grandiose, but I'm convinced there's something to it.  Right now, there's a line around the block of men and women looking to cross a border to start or expand a hotel, a grocery store, a bio-tech firm.  And when they do, they'll bring with them not only their cash, but their skills, intuitions, memories, personalities, stories.  They've got to be as free to do so as we can possibly make them.

Senator Elizabeth Warren and the Values of Free Trade

Senator Elizabeth Warren was interviewed today on NPR's Morning Edition.  Read and listen here.

It struck me that certain aspects of Senator Warren's argument against the Trans-Pacific Partnership (TPP), a 12-nation trade and investment treaty, were, though hardly outrageous, at least worth looking at more closely.

1) Senator Warren states that 'corporations under this deal are going to get to sue countries for regulations they don't like and...the decisions are not going to be made by courts, they're going to be made by private lawyers.'  There are a couple issues here:

First, it needs to be pointed out that companies doing business in another country can always, trade deal or no, sue that country if the company believes it has been unfairly and/or illegally regulated.  The difference is that in the absence of a trade agreement they would have to do so in that host country's own courts.  This is not a particularly daunting prospect if you're an Asian company doing business in the U.S., where local courts are, by comparison, extremely fair, competent and efficient.  But U.S. companies doing business in, say, Vietnam, might not relish the prospect of trying to hold the government of Vietnam to fair regulatory practices in the courts of Vietnam.  Thus, the provision of the treaty which grants to companies doing business in a foreign country the right to bring a claim against that host country in arbitration, are in fact far more beneficial to U.S. interests than to the interests of any non-U.S. company doing business in the U.S.  Put simply, such arbitration provisions are not being pushed on us by devious foreign countries seeking to circumvent established standards of fair play; rather, we wrote these provisions, and we gain from them far more than we lose.

This brings up a second point.  Senator Warren repeatedly says that 'decisions' in any dispute are going to be made by 'private,' and/or 'corporate' lawyers.  She says this enough times to raise the suspicion that her staff must have stressed to her the need to evoke the vague dastardliness of 'corporations' and 'lawyers,' rather than referring to the process of Investor-State Dispute Settlement (ISDS) as the more or less neutral and procedurally sound process that it is, namely, the process of arbitration.  While it's true that arbitrators are paid by the parties to the dispute, and thus in this sense 'private,' they are bound by the procedural rules of the arbitral venue under which they are operating.  The most common of these venues are the Arbitration Institute of the Stockholm Chamber of Commerce, the London Court of International Arbitration, and the International Center for the Settlement of Investment Disputes (ICSID) in Washington, D.C.  These are hardly the shadowy back rooms where Senator Warren seems to suggest that the protection of American interests will be dealt away for a few dollars by unscrupulous 'corporate lawyers.'  In fact, whatever the moral failings of American businesses in recent years, why is it assumed at all that attorneys who work for private businesses (again, those nefarious 'corporate lawyers') are unscrupulous?  To insinuate this is to edge up on the kind of inflammatory demonizing that so paralyzes and degrades our national dialogue, and it's surprising to see it come from a dedicated guardian of the public interest like Senator Warren.

2) Senator Warren expresses reservations about so-called fast track authority ('greasing the skids') for the executive branch to negotiate trade treaties which would then be subject only to approval or disapproval, and not to amendment, by Congress.  This reservation is not ideological, but more a part of the eternal American give-and-take between the branches of government.  The argument on that count does not begin, nor will it end with Senator Warren.  I bring it up here only to point out that especially in the case of trade and investment treaties, with their mind-boggling number of technical provisions relating to individual products, it is difficult to imagine how the USTR could conduct a viable negotiation with other nations if those nations knew that every agreement reached with the American negotiators could later be nitpicked to death and amended to the point of unrecognizability by a Congress with complex motives.  Such a state of affairs would undercut any credibility our negotiators would have in making promises, and the resulting unwillingness of our trading partners to negotiate with us would redound to the detriment of American credibility generally; it would be a (further) signal to the world that our house is not in order.

3) One suspects as well that an effort to conduct a reasonable, viable negotiation is behind the secrecy with which the TPP has been negotiated.  Irrespective of other considerations, it seems rather certain that should the negotiating parties' every proposition be shouted about on television in the apocalyptic tones that now characterize our political and cultural climate, basic trust between the parties would be sacrificed, quickly to be replaced by exasperation among our partners, and demoralization among our own negotiators.  One struggles to understand how this could be a sustainable, let alone a desirable, state of affairs.

4) Senator Warren points out that 85% of the 500 individuals comprising 28 working groups that have 'helped shape the trade deal' are 'either corporate executives — senior corporate executives — or lobbyists for the industries that are being affected.'  Senator Warren is unarguably right to be concerned that the full diversity of American constituencies be allowed to provide input into U.S. trade policy.  However, while I don't know the source of the Senator's statistics, nor how they were calculated, I would make two points.  First, the USTR, throughout the negotiating process has opened multiple public comment periods on multiple aspects of the TPP, and received testimony and written submissions from everyone from the United Steel Workers to the World Wildlife Federation to the University of Tokyo (see, e.g., here).  Second, though one may assume that industry experts will push for the most beneficial possible terms for their companies and industries, their very expertise is crucial to an understanding of what individual provisions actually mean and of what impact the agreement as a whole will have on various sectors of the U.S. economy.  It is difficult to imagine that USTR negotiators will be so in thrall to these experts that they (the negotiators) will be incapable of taking into account the experts' natural biases in favor of their own interests.  This is not to say that there are never damaging, improper relationships between government officials and industry insiders, or that undue influence is never brought to bear.  At the end of the day, however, government and the private sector have to rely on and complement each other, and the mere fact of private sector involvement in the formation of trade policy is not necessarily evidence of anything untoward or insidious.

It is true that my personal instinct is to favor free trade and investment.  In fact, I'm interested in a line of thinking that holds it as something of a human right -- the right to full expression of professional identity, we might say.  (Though there are clearly problems with such a formulation, perhaps chief among them the fact that very large businesses do not possess anything like the nearly sacred 'identity' that persons may be said to have.)  But to be generally in favor of international trade and investment that is as free as it can safely and reasonably be is not to be a blood ideological foe of environmental or labor protection.  Rather it is to begin from the premise that exchange, of nearly every kind, between the diverse peoples of the earth is good, and that instead of opposing it, those who have righteous concerns about its consequences should work to make it better, more fair, more just.

I'm reminded of a quote in the New Yorker from then-U.S.-Senate-candidate Obama, who opined that most people are ultimately in favor of free trade, whether they realize it or not, because (among other things) they like having affordable, high-quality consumer goods.  "They just don't want their communities destroyed" because of it, he said.  That is surely the balance we have to strive for.

There's likely no reason to doubt that Senator Warren's reservations are principled and heartfelt.  I write only to clarify some of her statements in my own mind, and to examine as fully as possible whether her outright objection to free trade and investment has merit or ultimately fails to persuade.  For the reasons above, I don't think the Senator's argument carries the day.