The American manufacturing industry and its employees are constantly told that they need to be better competitors in the global market, that they must increase the value they add. How are they doing on that?
Something that jumps out from data about the share of global manufacturing had by the United States, China and five other industrialized nations, is that the US is about even with China. As of 2008 and according to UN figures, China's manufacturing accounts for 17.3 percent of world output in dollars (though this number is slightly inflated), while the US' share is 17.7 percent. All else is rarely equal, so this is about as close as you'll get in the real world.
From a Bureau of Labor Statistics report described here, "By the end of 2006, China's manufacturing employment had increased once again to 112.63 million, nearly eight times the level of manufacturing employment in the United States (14.16 million)." The numbers have surely changed since then, but probably not by an order of magnitude.
Those figures could imply many things, but what they seem immediately to suggest is that American workers are extremely productive. They can produce both a high volume and high value of goods, and they have done so without getting a real raise since 1974.
Yet US manufacturing workers face higher unemployment rates than the national average, and often have to accept lower paying work when their plants close down, which should be no surprise. At the advice of the finance industry, wages and benefits have been driven down, policy makers were encouraged not to worry about the decline of the industrial base, and the whole thing was papered over with a massive consumer credit bubble.
For years, Americans have been fulminating about China and its policy toward currency. While many of the debates are technical and laden with econo-speak, they boil down to the simple conviction that China is unfairly manipulating its currency to keep it undervalued against the dollar. The result is to give China unfair advantages in trade - flooding the US with cheap goods, hurting labor wages world-wide, and accumulating massive surpluses in the process. That view is again articulated by Paul Krugman in today's New York Times (http://www.nytimes.com/2009/10/23/opinion/23krugman.html?ref=opinion) which ends with the firm statement: "Something must be done about China's currency."
The economic relationship between China and the United States is the defining issue of our day. While debates over health care are vital to American society, and while challenges ranging from Iran to Afghanistan to North Korea are real, nothing will determine the arc of the coming decades - or will shape domestic life and prosperity in the United States - more than the emergence of China as a global economic superpower unrivalled except by America.
The rise of China is hardly a secret, but because it is a complex economic that is constantly evolving, it gets less attention than hot-button issues. Absent a real crisis between the two, the relationship is more about the flow of capital and the nature of global business than it is about heated battles inside the Beltway or on Main Street. And while the rise of China and America's increased dependency on Chinese loans to fund its deficits certainly generates anxiety, it's mostly amorphous barring some specific issue to focus it.
How that relationship came to be is the subject of my new book, Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends On It. While this economic fusion has taken more than two decades to evolve, with the crisis of the past year, it has become both a tighter embrace and one more fraught with tension. It's to the credit of both governments - for now - that those tensions have not boiled over.
While Washington is glued to the drama over health care, over the past few days, Russian Prime Minister Vladimir Putin has been in Beijing meeting with Chinese leaders including Premier Wen Jiabao and President Hu Jintao. In a series of communiqués, they celebrated the "strategic partnership" between the two countries and charted a course of future close relations.
Among others things, Putin - Russia's man behind the curtain who has also been spending considerable time in front of the curtain - signed off on six billion dollars worth of trade deals Chinese counterparts, including moving ahead with a natural gas pipeline to open up the vast Chinese market to Russia's equally vast supply of natural gas. The two sides also discussed policies to contain and manage North Korea. Trade between the two countries is approaching $60 billion a year, and while that is a faction of the more than $300 billion a year between China and the United States, it is hardly negligible.
In the past few years, the economic relationship between the United States and China has changed dramatically. As Tim Fernholz writes in the American Prospect: "Chastened U.S. officials who once lectured their counterparts in [China] on financial liberalization are now humbled in front of their largest creditor, reduced to offering promises of fiscal responsibility." It's a strange state of affairs. Fernholz rightly argues that:
"The common interest of the peoples, rather than the economic elite, ought to be the driving motivation behind the two countries' interactions. There is no doubt that economic openness has brought wealth to both countries, and the Obama administration is happy to laud the Chinese for bringing millions out of poverty. But in a relationship between "capitalism with American characteristics" and "socialism with Chinese characteristics," sometimes the people-whether they be workers losing jobs in the United States or the millions of Chinese living without political freedom or prosperity-have interests other than the elites. Today, we're in an economic crisis, and pragmatism overrides all else. But as recovery continues, the U.S. will require more thought on the strategic track, and perhaps in a few years our discussions with China, as they should be with all our friends, will be more frank."
But our current economic relationship with China pre-dates President Obama's "talk first" style of diplomacy. As Robert Scheer of The Nation writes: "Don't blame any of this on peacenik liberals. The new conciliatory-nay, deferential-tone toward China precedes the Obama administration, having begun in bilateral talks during the last years of the Bush administration as the U.S. economy began its ignominious downfall. It was George W. Bush's treasury secretary, Henry Paulson, who set the course when the former Goldman Sachs chairman realized how dependent were his Wall Street buddies on Chinese goodwill."
Strange relations with China aside, things aren't going so well at home. Rick Wolff, an economist from the New School, says the stimulus package has big problems in a discussion with The Real News. Wolff also notes that we shouldn't take Wall Street chatter about an economic upswing too seriously. "I think the first thing to remember is the people who are celebrating where we are now are the same people who could not imagine, did not imagine, did not foresee the problem we had last year," Wolff says.
But what's going on with our favorite bailout recipients? Talking Points Memo takes on the case of former Federal Pension Guarantor Charles Millard, who exploited his personal ties with employees at BlackRock Capital and Goldman Sachs while choosing firms to manage the Pension Benefit Guaranty Corporation. At this point, both firms "may have run afoul of federal contracting rules in how they courted Millard."
Goldman Sachs and BlackRock are also on the lookout for the next big economic bubble. Salon reveals that both firms are diversifying their portfolios to include agriculture, in addition to government contracts. "Food is becoming the new oil," especially since the world's population is expected to crest nine billion by 2050. And a lot of land is necessary to grow enough food for nine billion people. Phillipe Heilberg, founder of American investment firm Jarch Capital, is hedging his bets on farmland in distressed countries. "Instead of buying stocks, the former banker is now speculating on the political future of South Sudan, which he insists will be an independent country in 10 years, at which point land will be far more expensive than it is today."
It's abundantly clear that we can't rely on the economic elite to represent the people's interests. Tomorrow's economic structure must be drastically different if the United States is going to thrive. Put simply, we're going to have to seriously reevaluate our economic priorities and decide who calls the shots. Here's hoping that everyday people have a say.
As the United States and China wrap up their two-day "Strategic and Economic Dialogue," it's more apparent than ever that the two find themselves in a marriage that neither can easily dissolve and that neither fully wants.
The speeches struck all the rights notes - "the United States and China share mutual interests," President Obama announced. "If we advance those interests through cooperation, our people will benefit, and the world will be better off - because our ability to partner with each other is a prerequisite for progress on many of the most pressing global challenges" Those sentiments were echoed by both Hillary Clinton and Timothy Geithner in an op-ed published in the Wall Street Journal. The Chinese delegation spoke of the two nations as traveling in the same ship, a ship which was wracked by the global financial storm of the past year. In general, the rhetoric could not have demonstrated more clearly that both see themselves as locked in a relationship of mutual dependence.
This seems like Framing and Political Strategy 101 to me, but since few other people are talking in this way, let me just lay out a basic idea: all this talk about doing a stimulus package versus not doing a stimulus package is fundamentally besides the point. What we need is a comprehensive policy package that is very simply focused on one thing and one thing only: jobs.
I know the policy wonks on Capitol Hill may be confused by that paragraph because, they would say, well, a stimulus program would create jobs. Well, yeah, that is the idea of stimulus. But my point is this: the politics of a second stimulus package are a dead end. The politics of having a debate about a policy package that will create jobs is a helpful thing. Announcing a second stimulus package gets Democrats into a defensive crouch about why the first one failed, and gets us into that same "can we get to 60" dance with Ben Nelson, Arlen Specter, Olympia Snowe, and Susan Collins that caused the first stimulus bill to be pared back and rendered less effective.
Voters don't know what it means to say you are going to stimulate the economy, but they do know what a job is. And right now, what we need is jobs sooner rather than later. My point here is not to just rename the stimulus bill the jobs bill. In fact, there are quite a few things the White House and Congress can do to focus on jobs that don't involve just spending more, although more money will certainly need to be spent. Here is what I would include in a comprehensive package:
So the United States lost to Brazil in the final of the FIFA Confederations cup, in that thrilling but painful tale of two halves, with the U.S. up 2-0 only to see Brazil roar back (or rather dance and prance and glide with balletic ferocity) and win 3-2. All I can say is, thank god.
For the past sixty years, the powerhouses of international soccer (a.k.a. football) either have been empires past their prime and on the decline or countries that dream fruitlessly of empire - England, France, Italy, Germany, Argentina, Brazil, and Spain. To bestride the world as a soccer power is to not bestride it as an economic or military power. In its period of global hegemony, the United States was manifestly not a global powerhouse in soccer. It was mighty in everything but the sport that is played by more people in every corner of the world than any other. And so if the United States had magically defied the odds and the gods and beaten Brazil, it would have been the final sign that American is indeed in decline.
Building a new foundation requires a lot of heavy machinery. Bulldozers to clear the land, extractors to dig the foundation, concrete-mixers to pour the cement and trucks to haul the raw materials. So perhaps it's appropriate that Jim Owens, the CEO of Caterpillar will be at the White House tomorrow for the first meeting of the President’s Economic Recovery Advisory Board (PERAB). The group includes some of America’s leading thinkers, business executives, and academics, including the CEOs of GE, UBS, and Google. (full list here)
The Board was created by President Obama in February to provide an outside-the-Beltway perspective on how we can recover from the financial crisis and build a new foundation for the American economy. "New Foundation" is emerging as the catch-all phrase to describe Obama's domestic policy agenda, similar to FDR's "New Deal" or Johnson's "Great Society" as a recent New York Times article points out. It's a good term, capturing both the shaky and unsustainable foundation of our past economic growth and framing out the kind of economy we need to build for the long-term. We are well past the time for patchwork solutions. We must rebuild and we must rebuild the right way.
Amidst all of the discussion about how the Republican Party is searching for a way out of the wilderness, the sheer scope of the Republican deficit is often missed. Currently, Republicans face a far more severe electoral problem than Democrats faced four years ago. Consider the following:
Republicans equally popular as Republican boogeymen: With a favorable rating hovering just on the south side of 40%, Republicans are currently about as favorable as most of their favorite boogeymen used to scare voters. Republicans are currently viewed about as favorably as legalizing marijuana, gay marriage, Communist China, and increasing the current level of immigration. All of these right-wing scare tactics--increasing immigration, legal drugs, gay marriage, Communist superpowers--hover around the same 40% favorable rating as Republicans themselves. Among voters under 45, Republicans lose pretty solidly to most, if not all, of these boogeyman. If you are only as popular as the ideas you try to scare voters with, and if long-term trends suggest that it won't be long before the boogeymen you use will actually be more popular than you are, then it is really, really hard to see a way back for your party.
Demographic trends point in the wrong direction for Republicans. This has been a favorite subject of mine for a while, as I wrote in Maybe It Is A Battle Of Civilizations, Towards a Pluralist Strategy, and The End of Bubba Dominance. The simple fact is that Democratic voting groups, mainly non-whites and non-Christians, but also union voters and the LGBT community--are actually growing in size. For example, when projected ethnic population growth (PDF), and is applied to current ethnic voting patterns, if the 2008 election had been held in 2020, Obama would have defeated McCain by 9.8%, a 2.5% increase from the 2008 margin of 7.3%. That doesn't even factor in what will inevitably be a large non-Christian and LGBT vote, two groups that vote for Democrats at nearly the same rate as non-whites. The point is that if Republican popularity stagnates among current demographic groups, overall Republican popularity will actually decline. They have to improve just to maintain their current level of unpopularity.
(more great anti-Republican numbers in the extended entry)
According to February Gallup polls, it turns out that Communist, melamine exporting, beating-us-in-the-Olympics China is now more popular than Congressional Republicans:
"Next, I'd like your overall opinion of some foreign countries. Is your overall opinion of [see below] very favorable, mostly favorable, mostly unfavorable, or very unfavorable?"
China: Favorable 41%--51% Unfavorable
This is another edition of stuff that is more popular than Republicans.
Secretary of State Clinton is focusing on climate change during her visit to China. Admirable, though I'm glad I didn't have a mouthful of coffee when I read the start of this New York Times article:
BEIJING - Declaring "we hope you won't make the same mistakes we made," Secretary of State Hillary Rodham Clinton invited China to join the United States in an ambitious effort to curb greenhouse gases, as she toured an energy-efficient power plant in Beijing on Saturday.
"When we were industrializing and growing, we didn't know any better; neither did Europe," Mrs. Clinton said. "Now we're smart enough to figure out how to have the right kind of growth." ...
The current economic crisis has claimed many victims, but what has changed most is the way that the United States is viewed, perhaps permanently. That isn't ideology; it isn't declinism; it's a fact. For all the talk in past year about the shifting balance of power globally, until now it has been just that, talk. Saying that the emerging world of China, India, Brazil and the rest have assumed a new place is like saying that a new army is well-equipped with sharp uniforms and cutting-edge weapons. That doesn't mean it can fight. Until tested in battle, it's just a guess. The economic crisis of the past two months has been such a test, and the results are clear: talk of the emerging world as the wave of the future isn't just speculation; it's a permanent reality.
The following is an excerpt from a recent opinion piece of mine in the Wall Street Journal. For links to this and other writings, please feel free to visit River Twice Research.
The incoming Obama administration will face formidable challenges, but global economic collapse is no longer imminent. That may be small short-term comfort to the markets and Main Street. But having stared down the abyss, governments around the world appear determined to address root issues. The G-20 gathering of the world's major powers in Washington on Nov. 15 was only the beginning of a long and constructive process of revising the global system.
So the G20 met over the weekend, and if there was any doubt before, there should be none now: the financial balance of power is shifting. China, Brazil, even Japan can all claim more sound economies than the United States, and they collectively let it be known that they would no longer take marching orders from the Washington consensus. They expect a voice, and they are not asking permission
North Carolina should be an exporter of many things, but should it be exporting jobs to China? Elizabeth Dole thinks so. She voted to give tax breaks to companies that move jobs overseas. Meanwhile, her own state suffers the loss of 100,000 jobs disappearing.
That's the equivalent of an entire medium size city just up and evaporating.
North Carolina needs representation in the Senate that looks out for its interests, not the interests of China. Let China take care of China, and at the same time, lets have someone representing the interest of North Carolina in the Senate.
This week, I had the opportunity to participate with my fellow 5th district candidates in a forum sponsored by WPSU TV to discuss job creation and economic conditions in the 5th Congressional District. As we fielded questions on the various issues, I paid close attention to how my views on job creation and retention along with overall economic development strategy differed from my opponents. What I heard from my Republican opponent was numerous statements about "incentives" and "tax credits" to entice businesses to locate or expand in the 5th district.
Yesterday's opening ceremonies of the Olympics seem to be receiving nothing but rave reviews today. Personally, I enjoyed them, too, even if most of the artistic portion struck me as pretty much the same thing as Broadway, Disney or Bollywood musicals that I don't like very much, only on a scale 50 times larger. A bit cloying for my tastes. Then again, the older I get, the more I seem to like those musicals, but I digress...
What I did like, and what I usually like about the Olympic opening ceremonies, is the march of nations. Yesterday's was just as spectacular and enjoyable as any I can remember:
Before the ceremonies, I was generally of the view that, because of its environmental degradation, internal human right's and worker's right's abuses, it should not have been awarded the Olympics games. However, watching the march of nations, it became clear to me why hosting the Olympics was so important to China, and why there really isn't a good argument to deny them these games. Concerning the former, it is pretty obvious that having the world's greatest athletes, along with many of the world's leaders, make a pilgrimage to your country is a remarkable honor--and certification of recent progress--for a once preeminent nation that has struggling mightily over most of the last 170 years. Concerning the latter, considering our extensive economic ties with them, considering our own recent international record, and considering our own environmental abuses, the more I thought about it, who are we to criticize China? Until we put our own house in order, China absolutely deserves to host this pilgrimage every once and a while.
This is the ongoing story of a species whose leaders have a death wish, and whose members at large mostly don't. Also, sometimes they got to wondering what should be done about a large geopolitical concentration of fellow beings operating under the brand name "China".
(9) What has been will be again, what has been done will be done again; there is nothing new under the sun. (10) Is there anything of which one can say, "Look! This is something new"? It was here already, long ago; it was here before our time. (11) There is no remembrance of men of old, and even those who are yet to come will not be remembered by those who follow. - Ecclesiastes 1:9-11 (NIV)
A centrally planned economy.
Shiver. It's a bogeyman of the hardly-ever-Right that liberals and environmentalists want to foist a centrally planned economy on the US. They point to the Soviets, the Chinese, the human misery caused by perpetual shortages based on miscalculations of demand, the failure of price signals, the inflexibility of industrial response.
Those systems were inefficient, it's true. Consider:
The Great Leap Forward was the name given to the Second Five Year Plan which was scheduled to run from 1959-1965, though the name is now generally limited to the first three years of this period. ... The central idea behind the Great Leap was that rapid development of China's agricultural and industrial sectors should take place in parallel. ... To achieve this, Mao advocated that a further round of collectivisation modelled on the USSR's "Third Period" was necessary in the Chinese countryside where the existing collectives would be merged into huge People's communes. ... At the Politburo meetings in August 1958, it was decided that these people's communes would become the new form of economic and political organization throughout rural China. Astonishingly for such a dramatic social change, by the end of the year approximately 25,000 communes had been set-up, each with an average of 5,000 households.
... On the communes, a number of radical and controversial agricultural innovations were promoted at the behest of Mao. Many of these were based on the ideas of now discredited Soviet biologist Trofim Lysenko and his followers.
... With dramatically reduced yields, even urban areas suffered much reduced rations; however, mass starvation was largely confined to the countryside, where as a result of massively inflated production statistics, very little grain was left for the peasants to eat. Food shortages were bad throughout the country; however, the provinces which had adopted Mao's reforms with the most vigor, such as Anhui, Gansu and Henan, tended to suffer disproportionately. Sichuan, one of China's most populous provinces, known in China as "Heaven's Granary" because of its fertility, is thought to have suffered the greatest absolute numbers of deaths from starvation due to the vigor with which provincial leader Li Jinquan undertook Mao's reforms. During the Great Leap Forward, cases of cannibalism also occurred in the parts of China that were severely affected by drought and famine.
... Additionally, this loss in Mao's regime meant that Mao became a "dead ancestor," as he labeled himself: a person who was respected but never consulted, occupying the political background of the Party. Furthermore, he also stopped appearing in public.
... In agrarian policy, the failures of food supply during the Great Leap were met by a gradual de-collectivization in the 1960s that foreshadowed further de-collectivization under Deng Xiaoping. Political scientist Meredith Jung-En Woo argues: "Unquestionably the regime failed to respond in time to save the lives of millions of peasants, but when it did respond, it ultimately transformed the livelihoods of several hundred million peasants (modestly in the early 1960s, but permanently after Deng Xiaoping's reforms subsequent to 1978.)" ...
Even authoritarian China had to reject the disastrous local effects of collectivized mass agriculture. Even a figure such as Mao was brought low by failures that led to the deaths of millions. But now look where they're at today, and also consider this:
This is the ongoing story of a species whose leaders have a death wish, and whose members at large mostly don't. Also, sometimes they got to wondering what should be done about a large geopolitical concentration of fellow beings operating under the brand name "China".
(9) What has been will be again, what has been done will be done again; there is nothing new under the sun. (10) Is there anything of which one can say, "Look! This is something new"? It was here already, long ago; it was here before our time. (11) There is no remembrance of men of old, and even those who are yet to come will not be remembered by those who follow. - Ecclesiastes 1:9-11 (NIV)
We remember the past very selectively. It's certainly true that much of it, for most people, was horrible. And with the American view of history so much informed by the history of the Europeans, which ran heavy in the famine, epidemic and arbitrary gibbeting direction, it could be easy to assume that things were like that everywhere. In some cases, that's also certainly true.
Non-European peoples weren't societies of saints before colonial explorers got there; they had their own problems, their own demons. It isn't necessary to remember them as perfect to understand that what was done to them was wrong. Reserving justice only for the 'deserving' undermines the rule of law, destroys the social compact through alienating and arbitrary corruption, and must be regarded as ethically suspect human-to-human behavior from the perspective of every religious faith I've looked into.
In many cases, the ancestors of the people in what we now regard as the developing world achieved remarkable things that it's easy for us to lose sight of, seeing them as we do through the lens of a present in which their polity has often been through the wringers of some or all of repeated foreign conquest, deliberate cultural erasure, guerrilla warfare, Cold War coups, land dispossession and structural adjustment.
Just because many of them have been brought low, even to the state of the European peasantry of the pre-colonial and colonial eras, it shouldn't eclipse their past works, some of which were bloody amazing. It shouldn't necessarily make us despair for their future. After all, the European peasantry eventually did pretty well for themselves.
Paradise Burned
Nearly 500,000,000 people are being maintained, chiefly upon the products of an area smaller than the improved farm lands of the United States. Complete a square on the lines drawn from Chicago southward to the Gulf and westward across Kansas, and there will be enclosed an area greater than the cultivated fields of China, Korea and Japan and from which five times our present population are fed. - F.H. King, Farmers of Forty Centuries, 1911
For four thousand years the Chinese farmed their countryside and maintained its fertility. They farmed the same countryside, over and over again for generations. If its productivity did not increase, neither did it seem to decrease.
The contrast between the results of the original Chinese model and the European model of commodity extraction applied to the fertile Americas could not be more stark:
The forest became drastically reduced because of profligate cutting practices. The soil was progressively eroded and exhausted by European-style agriculture. Evidentally the settlers and their descendants mistook a temporary gift of nature for a permanent one. They assumed that depletion of one site could be made up by continuous expansion into others, "and in the long run," Mr. Cronon writes, "that was impossible." Seen from this angle, "the people of plenty were a people of waste." - From the New York Times book review of Changes In The Land: Indians, Colonists, and the Ecology of New England., by William Cronon.
The people of waste, indeed. Consider what they'd inherited, what they could have maintained and copied for their own use, perhaps even shared, for our eventual benefit:
and trucks to haul the raw materials. So perhaps it's appropriate that 
