New Democrat Update - March 2008
DEMOCRATS AND TRADE
The race for the Democratic presidential nomination, most especially in Ohio, has raised the temperature on the intra-party debate over NAFTA specifically and, more importantly, the future of free trade generally. Despite some very tough counter-prevailing political winds, Democrats must resist the easy short-term temptation of economic nationalism and instead choose global engagement - for the sake of our party’s political prosperity and America’s future.
The right kind of leadership and effective public policy can empower more Americans to prosper from globalization, rather than trying to flee from it. Helping people manage change will help them to accept change.
The political environment surrounding free trade is indeed challenging. According to the 2007 Pew Global Attitudes Survey, only 59 percent of Americans think international trade is benefitting the country, compared with 78 percent in 2002. Polls find, for example, that barely 1 in 10 Americans think that trade will create U.S. jobs.
President Franklin Roosevelt would strongly disagree. Experience taught him that the Smoot-Hawley Tariff Act of 1930 worsened and maybe even caused the Depression. When international trade dropped by a whopping 66 percent in that decade, unemployment skyrocketed to 25 percent. In the tradition of FDR, and in light of the Bush administration, today’s progressives instinctively (although not always in practice) want to be about openness and international cooperation. Our friends around the world - particularly developing nations - are also seeking that kind of United States.
Economically engaging the world is even more important today because global interdependence is shaping every part of our economic lives, as well as defining our policy choices on everything from the environment to terrorism (and much more). Unlearning the lessons of the 1930s could be just as negatively consequential today, if not more so. The question is not how to stop globalization, or even slow it down, but how to make it work for all Americans and everyone else on the planet.
Trade agreements from the last two decades have been very good for America. According to the World Economic Forum, our economy is the most competitive on earth, adding a net 11.6 million jobs in service and other sectors where average wages are higher than in manufacturing. A recent survey looked at the competitiveness of different businesses and concluded, "The United States is the productivity leader in virtually every industry."
Fueling that competitiveness are our transparent markets, rule of law, intellectual property protection, top-notch universities, stable government, availability of capital, and educated workforce. The country’s entrepreneurial culture and information technology talent are also important assets.
Which is why NAFTA, and all the other trade agreements that have been in effect since 1993, have helped grow the American economy by 54 percent, create more than 25 million net jobs, reduce the unemployment rate of 7.1 percent (the average between 1980 and 1993) to 5.1 percent (1994-2007). Studies indicate that globalization boosts each U.S. household's income, through better-paying jobs and lower prices for consumers, by about $10,000 a year.
According to Harvard economist Robert Z. Lawrence, the average blue-collar worker's wages and benefits, adjusted for inflation, have actually risen by 11 percent since 1994. Just last year, increases in total exports accounted for 40 percent of our overall economic growth.
NAFTA itself did not cause the decline of Ohio’s troubled manufacturing sector. Two years after the agreement took effect, the number of manufacturing jobs there had actually grown. Nationally, industrial output expanded far faster than it did in the decade before NAFTA.
The loss in jobs was due to the very factors that keep American manufacturing competitive in the first place - technological advancement and productivity increases, the keys to raising real wages and living standards. Overall, trade has been a minor cause, responsible for only 3 percent of all those workers who lose their jobs. Ninety percent of manufacturing job losses resulted from forces right here at home, not international competition.
Generally, fears about losing jobs to other countries have been exaggerated, taken out of context and viewed in a one-sided manner. It is true that, from 1989 to 2004, the number of jobs outsourced grew 3.8 percent per year but the number of insourced into the United States from foreign firms grew by 7.8 percent per year. Yes, one estimate has 3.4 million jobs going overseas by 2015. But that only represents 227,000 jobs per year, less than one-quarter of one percent of the total number of jobs in the country today. More than 6.4 million Americans are employed by companies based overseas.
Americans intuitively understand all of that. Only 10 percent of them say they are very worried about losing their own job to outsourcing, and 64 percent are not worried at all.
Of course, this new world is getting more competitive as hundreds of millions of new low-cost workers from developing countries like China and India enter the job market. But it is also opening up new opportunities as these same countries produce hundreds of millions of new middle-class consumers as potential customers.
Economic history teaches us that the number and type of jobs in an economy as vibrant as ours is very dynamic. When the republic was still young, 75 percent were employed in agriculture. As those jobs went away, they were replaced by new opportunities that paid considerably more. Those “new” jobs (mostly in the manufacturing sector) are being replaced today by information and service positions. There is every reason to think that this trend will only continue.
While the benefits of free trade far outweigh the costs, this new, faster-moving economy does leave many workers behind. Ensuring that all Americans do well requires a healthy, two-way relationship between government and individuals, one that demands responsibilities of both.
The public sector must create a climate of opportunities for ordinary citizens and equip them so that they can succeed. Civil society and government also have a responsibility to help those, hurt by the forces of change, help themselves. At the same time, individuals must be willing to accept the realities of this new more open world, take some risks and compete.
A modernized, more relevant, safety net would promote the very behaviors a growing economy needs such as encouraging more people to start their own business, get more education or job training, or move into a different career. Creating a wage insurance system, along with overhauled health care and retirement systems, would also make a big difference. Investing in the infrastructure and research and development - especially clean-and-green industries and medical science - should be part of the package as well.
THE HARD POLITICAL WORK
Taking on this important fight will not be a bed of roses. The domestic politics around trade will always be challenging because of a classic problem with democracy. Even though free trade creates far more winners than losers, the benefits are widely distributed while the costs are concentrated among the relatively fewer. Those hurt will inevitably be louder and more visible than the beneficiaries. Thus, it is much easier for the media to cover a plant closing than a number of small business generating additional employment opportunities because of increased exports.
That is why on this crucial front, there is no substitute for strong and thoughtful leadership. Democrats, who are much more trusted than the opposition on a host of economic issues, have a special obligation to lead the way in selling the benefits of free trade to working families. We must resist exploiting the very legitimate anxiety of some workers trying to cope with rapid change and a much different economy, and turn it into a message that says America is under assault and fundamentally falling apart at the seams.
At the end of the day, that message, in addition to being wrong on the merits, is a loser. Our party fails at the ballot box when it is overly pessimistic about the future and when the reality described differs from the reality most experience.
Progressives must once again learn to talk confidently and optimistically about globalization and technological change because neither is going away any time soon. The political party that gets it right is sure to have a bright future.