From his perch as an anchor
on CNN, Lou Dobbs gives
voice to a neo-populist
movement broad enough to
unite newly elected left-liberal
Sens. Sherrod Brown (D-Ohio)
and Bernie Sanders (I-Vt.) with long-shot
Republican presidential candidate
Rep. Duncan Hunter (R-Calif.).
A demagogue to some but an oracle to
others, Dobbs taps a powerful sense of
fear, dislocation and narrowing horizons
as he warns of "the dismantling
of America's manufacturing base" at
the hands of China and a "war on the
middle class."
Dobbs' success -- and the public's
alarm -- are easy to understand. American
factories shed 3 million of their 17
million workers between 2001 and
2003, and have hired none back
since. The Internet is bringing
similar, though less easily quantified,
changes to many service
industries. It is natural to worry
about the nation's industrial
future and the security of
one's own job.
But Dobbs and his coalition
are wrong to believe
America is de-industrializing.
And the policy solutions they propose
would make the problems that do
exist even harder to solve.
In fact, American industry is
remarkably healthy and strong.
Measured by production, share of the
U.S. and world economies, or investment
and export trends, American factories
are doing very well. Consider
five basic trends:
Production: In real dollars, American
manufacturers produced $1.53 trillion
worth of goods in 2005 -- up from
$900 billion in 1992, a 70 percent
increase.
Share of the economy: The most
recent data show that manufacturing
accounts for 13.5 percent of the U.S.
economy in real dollars -- up from
12.9 percent in 1992.
Share of world manufacturing:
World Bank and U.N. reports find
that the United States accounted for
21.1 percent of the world's manufacturing
output in 2003, only slightly
less than the 21.4 percent of 1993.
Insourcing and outsourcing: More
factory investment comes into the
United States than goes abroad. Since
2005, Americans have invested $78
billion in foreign manufacturing ventures.
In that same period, America
received $100 billion in manufacturing
investment from abroad.
Exports: American factory exports
jumped by $60 billion in 2005, and
soared by $100 billion in 2006. The
latter figure is an all-time record in dollar
terms, and represents the fastest pace
of export growth in a quarter-century.
Far from being dismantled, therefore,
American manufacturing is
doing very well. But while Dobbs is
wrong to suggest the United States is
losing its manufacturing base, so is
The Wall Street Journal 's editorial
board when it cites growth and productivity
data as proof that nothing is
amiss. American workers and the families
they support have reason to
worry, and grounds for dissatisfaction
with the responses of those who
should help them.
Factories are succeeding in large
part because they have found an old
solution to low-wage competition:
cost-cutting through technology.
Albert Einstein saw the same phenomenon
at work when he visited
the United States in the 1920s. At
that time, Warren Harding's Republican
Party was consumed with
anxieties about trade and low-wage
foreign competition. Einstein observed:
"Once the machine is sufficiently
developed, it becomes cheaper
in the end than the cheapest labor."
Eighty years later, American factories
are proving him correct again.
Confronting a surge in Chinese
competition, American factories are
replacing people with machines more
quickly than ever before. The 3 million
workers laid off during the recession
of 2001 and 2002 do not represent
lost production, but heavy investment
in robots and computers.
American factories accordingly produce
more goods with fewer people.
During the next decade, the Bureau
of Labor Statistics predicts, U.S. factory
employment will fall by another
700,000 workers. America is not losing
jobs overall; private-sector employment
is rising again, and unemployment rates
remain 2 percentage points lower today
than they were in the 1980s. But transitions
are always traumatic, and this
one is particularly painful because the
Internet is simultaneously reordering
many service industries.
The United States is not alone in all
this, of course. But the changes may be
uniquely painful here, because of
America's very weak social safety net. In
Europe or Japan, a layoff means unemployment.
Here, it can be a family catastrophe
that couples joblessness with lost
health insurance, an evaporating pension,
and threats to college tuition and
house payments. Even with low unemployment,
high growth, and healthy factories,
a reasonable American worker can
easily decide the risk is too much to bear.
Yet the facts clearly show that pessimism
about America's industrial
future is mistaken. Moreover, the
favored populist remedy -- erecting
new trade barriers -- would do considerably
more harm than good. That
is not only the judgment of economic
theorists, but the dismal, real-world
experience of industries where tariffs
remain high: Manufacturers of
clothes, shoes, textiles, luggage,
watches, and costume jewelry have
lost jobs faster than unprotected
industries. Tariffs or similar measures
intended to shelter U.S. factories
would raise the cost of the metals,
computer chips, and other inputs
that manufacturers need to buy;
depress the purchasing power of their
American customers; and deprive
them of overseas markets just as
America's housing boom fades and
the need to export is greatest.
Instead, the country needs a two-part
progressive agenda -- one that
aims not to hold onto the past, but to
make the future easier to reach.
New social contract. The first part
of the agenda must be a program to
improve national competitiveness,
blending fiscal reform with skill development,
infrastructure, and trade policy.
The government should restore fiscal
discipline; American trade negotiators
should launch a more ambitious
program of opening foreign markets
to American exports; and Congress
should bolster support for scientific
research, while ensuring that visa policies
allow American universities and
businesses to tap the world's best
young scientific talent.
The second and larger challenge is to
meet worker anxiety with a new social
contract that eases the stress of transition.
America's current domestic arrangements
date to the years after World War
II when workers expected long careers
with single companies. In those years,
unions bargained with managers on
behalf of large groups of unskilled
employees, while government health
and pension programs filled the gaps by
providing for the poor and the aged. As
businesses pull back from their roles as
providers of health insurance and pensions,
and as the traditional union concept
of bargaining over the wages and
benefits of long-term workers loses relevance,
that combination is self-evidently
out of date.
A new social contract should be conceived
broadly to include a reshaped
labor movement, as well as new roles
for government. Unions and government
should join business in designing
guarantees of health insurance and
portable pensions, as workers shift from
one job to the next. They should offer
support for retraining and placement
during periods of unemployment, and
provide insurance for mortgage and
tuition payments during periods of economic
stress. With transitions made
easier and their risk lessened, workers
could look ahead with more confidence.
The open-market policies that
speed growth, keep unemployment
low, and underpin international political
stability would therefore have
stronger support.
Most of this program will have to
wait for a progressive president. But a
good start, as Congress takes up its
renewal of Trade Adjustment Assistance
this year, would be to make
TAA's health subsidy and job training
available to all dislocated workers.
The price tag for this would not be
enormous: approximately $4 billion a
year. That would be an affordable
down payment on the larger reforms
a new Democratic president might
oversee.
The larger effort lies further ahead,
but its outline is clear. The country
needs to be offered a fresh progressive
vision that explains why Dobbs and
the populists are wrong to say America
is losing factories and industry -- a
vision that looks ahead to the 2020s
rather than back to the
1970s. This reinvigorated
progressivism must not
regard public anxiety as a
form of ungrateful complaining,
but instead design policies and support new social
and labor institutions to address it.
That is the way to provide a new social
contract to replace the one that served
its function well in the past but is no
longer sufficient; and it would give
America's 21st-century workers and
middle class confidence that their
future is as bright as the nation's.
