In an excellent recent article in The Nation, William Greider laid out the views of Ralph Gomory, a former vice president of IBM, on how the US needs to radically change its' economic policies or the American people will watch their standard of living plummet. http://www.thenation.com/... The article outlines how multinationals will always try to maximize profit and how current U.S. trade policies mean that companies maximizing their profit costs U.S. workers jobs. But, a change in policy can turn that around. We just have to make it pay for them to keep good jobs in the U.S. Make them pay, not by subsidizing them, but by making them follow laws that help U.S. workers.
He explains how foreign trade is helpful to the U.S. when we are producing advanced products and importing simpler products, which we can buy cheaper than we can produce them. But, multinational corporations have begun financing the development of the poor countries so they too can produce the advanced products. Since their labor costs remain lower than those in the U.S., they begin to export these products to the U.S. and outcompeting U.S. produced products internationally. The result is the U.S. loses the advantage it had in the advanced products sector and U.S. workers lose their jobs.
Gomory saw this happen when he worked for IBM.
At IBM back in the 1980s, Gomory watched in awe as Japan and other Asian nations captured high-tech industrial sectors in which US companies held commanding advantage. IBM invented the disk drive, then dropped out of the disk-drive business, unable to compete profitably. Gomory marveled at Singapore, a tiny city-state, as it lured American manufacturers with low-wage labor, capital subsidies and tax breaks. The US companies turned Singapore into a global center for semiconductor production.
"It was an unforgettable transformation," Gomory remembers. "And it was pretty frightening.
"The offer that many Asian countries will give to American companies is essentially this: 'Come over here and enhance our GDP. If you are here our people will be building disk drives, for example, instead of something less productive. In return, we'll help you with the investment, with taxes, maybe even with wages. We'll make sure you make a profit.' This works for both sides: the American company gets profits, the host country gets GDP. However, there is another effect beyond the benefits for those two parties--high-value-added jobs leave the U.S."
This process works great for the multinationals. They make lots of money. It works great for the poor countries. They develop their economies and bring in better jobs. But, for U.S. workers it stinks. Greider and Gomory explain that what is currently in the interests of the multinationals is not in the interest of U.S. workers.
We need government trade policies to push for the interests of U.S. workers, not multinationals (when their interests are antithetical to those of the workers). Gomory says we need a political solution, because left alone multinationals will just maximize their profits, and that is not serving the interests of U.S. workers.
Gomory has two major suggestions for what to do.
Gomory's proposed solution would change two big things (and many lesser ones). First, the US government must intervene unilaterally to cap the nation's swollen trade deficit and force it to shrink until balanced trade is achieved with our trading partners. The mechanics for doing this are allowed under WTO rules, though the emergency action has never been invoked by a wealthy nation, much less the global system's putative leader. Capping US trade deficits would have wrenching consequences at home and abroad but could force other nations to consider reforms in how the trading system now functions. That could include international rights for workers, which Gomory favors.
Second, government must impose national policy direction on the behavior of US multinationals, directly influencing their investment decisions. Gomory thinks this can be done most effectively through the tax code. A reformed corporate income tax would penalize those firms that keep moving high-wage jobs and value-added production offshore while rewarding those that are investing in redeveloping the home country's economy.
US companies are not only free of national supervision but actively encouraged to offshore production by government policy and tax breaks. Other advanced economies have sophisticated national industrial policies, plus political and cultural pressures, that guide and discipline their multinationals, forcing them to adhere more closely to the national interest.
These reforms must be done together to work.
Neither of Gomory's fundamental policy reforms--balancing trade or imposing discipline on US multinationals--can work without the other. Both have to be done more or less at once. If the government taxed US multinational behavior without also capping imports, the firms would just head out the door.
Essentially, Gomory proposes to alter the profit incentives of US multinationals. If the government adds rules of behavior and enforces them through the tax code, companies will be compelled to seek profit in a different way--by adhering to the national interest and terms set by the US government. Other nations do this in various ways. Only the United States imagines the national interest doesn't require it.
Laid out like this Gomory's solutions sound like common sense. But, to make them happen we need the politicans on board. So the question becomes where are the Democratic candidates on trade? Do they advocate "free" trade that costs us jobs? Do they advocate policies that really solve the problem? Let's start the discussion on these critical trade issues.