Have the critics finally trounced the stand-patters in the often heated decades-long debate over U.S. trade policy? New revelations about a seemingly dry subject -- measuring productivity -- could prove once and for all that current policies are indeed impoverishing American workers.
Foaming at the mouth – that’s how the free trade extremists at the outsourcer-funded conservative think tanks and at the nation’s economics departments are reacting so far to a recent New York Times op-ed article (“Trading Away Productivity,” March 5, 2010) published by me and my colleague, U.S. Business and Industry Council President Kevin L. Kearns. But many more moderate supporters of the U.S. trade policy status quo are sure to be steaming, too. And in fairness to all of them, they should be.
Our article—which explains how U.S. government data portray the simple offshoring of jobs as productivity gains that enhance the efficiency of the U.S. economy—is anything but idle academic musing. Instead, it’s a hammer blow that has staggered one of the outsourcers’ strongest, and most smugly expressed, justifications for Washington’s longstanding obsession with indiscriminate trade expansion.
One question has dominated the national trade policy debate, especially since NAFTA began exposing American workers even in advanced manufacturing and high-tech service industries to competition from penny-wage, regulation-light third world countries: How have these policies affected U.S. employment and wages, if at all?
The nation’s elites, whose wealth has exploded since U.S. trade policy went third-world happy, have emphatically answered “marginally, at best.” They tend to acknowledge that the rich/poor gap in America has dramatically widened during these years, and many agree that inflation-adjusted median wages for their less fortunate countrymen have stagnated and even sagged in absolute terms.
But their favored explanation finds a silver lining in these clouds – at least in the long run. Labor market troubles, even in the heavily traded manufacturing sector, stem overwhelmingly from strongly rising productivity. And rising productivity, they hasten to remind one and all, is the country’s best hope for keeping living standards as high as possible.
Conservative trade policy enthusiasts have pushed the productivity explanation hardest and with the greatest exclusivity. Last year, for example, a Bloomberg reporter evidently seeking to undercut opposition to current trade policies, quoted former Federal Reserve Chairman Alan Greenspan as asserting, “Because of productivity growth, we have been able to produce more output with fewer workers.”
Greenspan successor Ben Bernanke fully agrees. In 2004, he declared that “the single most important factor in explaining lagging job creation is the strong gains in labor productivity that have been achieved in the U.S. economy in the last few years.”
The year before, Gregory Mankiw, chairman of the White House Council of Economic Advisors under former President Bush, maintained that “strong productivity growth has been the dominant long-run trend affecting manufacturing.”
The outsourcer-dominated U.S. Chamber of Commerce makes the trade policy connection even more explicit: “Where have…lost manufacturing jobs gone? Not to Canada or Mexico, or to China or India. Rather, they’ve been lost to a country called ‘productivity.’”
But important voices on the left have made virtually identical points. For example, Warren, Mich. residents were told last July that “the hard truth is, is that some of the jobs that have been lost in the auto industry and elsewhere won’t be coming back. They’re the casualties of a changing economy. In some cases, just increased productivity in the plants themselves means that some jobs aren’t going to return.”
This speaker, who conspicuously ignored the domestic auto industry’s long-time offshoring practices and predatory foreign trade rivals, was President Obama.
Which is why our article and its findings are so damaging. For as we make clear, much of the productivity boom recorded in U.S. government statistics has nothing to do with the efficiency-enhancing progress typically associated with the term – whether it stems from technological advances or managerial innovations. Instead, much of what is recorded as productivity increases is something quite different, and much less intrinsically beneficial for the American economy. It’s the replacement of U.S. workers by foreign workers in the production networks of U.S.-based companies. Why is offshoring different? Because, in and of itself, it has nothing to do with providing efficiency-enhancing technological progress or managerial breakthroughs for a country’s workforce. In fact, the workers in the country receiving the jobs and production often do the exact same kind of work, with the exact same kinds of tools, as the workers they’ve replaced. None of these individuals, therefore, is necessarily working the slightest bit more productively – though many, of course, are working for much lower pay, which is far from the same result.
The flaws we have reported in the productivity statistics—which since at least 2004 have been acknowledged by the Labor Department specialists who calculate them—have enormous implications for the entire range of U.S. economic policies. They even point to the need to revisit cherished notions about our nation’s economic strengths and weaknesses. But their impact on trade policy will be especially dramatic, and especially painful for supporters of the status quo.
After all, because they show that there has been a lot less of what might be called real productivity gains than widely assumed, they make clear that there has been a lot more of the offshoring kind that’s less intrinsically beneficial for the U.S. economy. And if there has been a lot less of the “good” kind of productivity increase, it follows that the leading alternative explanation for American job destruction and wage stagnation—mismanaged trade policy—assumes a much more, perhaps decisive, importance.
A few years ago, TV comic Stephen Colbert memorably coined the word “truthiness” to describe “something that seems like truth – the truth we want to exist.” As examples of this powerful human desire to believe claims regardless of evidence, logic or intellectual investigation, he tended to cite widely disputed statements insistently made by former President George W. Bush and his aides about the Iraq war, Hurricane Katrina and other sources of their credibility problems. If the free trade absolutists’ reaction is any guide, it seems that their ranks will soon be joined by legions of globalization cheerleaders—all desperate to believe against all the new evidence—that U.S. trade policies have had almost nothing to do with destroying living-wage industrial jobs in America.
Alan Tonelson is a research fellow at the U.S. Business and Industry Council Educational Foundation in Washington, D.C. A contributor to the Council’s AmericanEconomicAlert.org Web site, he is also the author of The Race to the Bottom (Westview Press, 2000). The views expressed here are his own.