Episode 21 July 22, 2019 CLP Topic Category: Economic Growth Title: Fixing the American Labor Markets

Audio

Our podcast today expands on President Trump’s comments about economic growth, under his administration, in order to focus more attention on the structural damage that the poorly-negotiated trade policies had on the American labor markets.

In the 1950s and 1960s, one part of the American economy that made America great were the stable jobs and internal career ladders that began with a private sector portal of entry into many high-wage occupations.

In that former era, the term “upward occupational mobility,” characterized much of the American dream of working hard and getting ahead in society.

Prior to the trade agreements in 1990, the college degrees and training certificates of young people entering the work force acted as a credential to get in the door of a company for an interview.

After the trade policies and the series of economic chaos inflicted by the Fed, stable jobs and internal career paths vanished. A college degree in economics now leads to a dead-end job as a bartender in New York.

Technology innovation was the initial factor endowment that provided job stability and upward occupational mobility, in the former period of time.

One consequence of the trade policies is that it allowed the national comparative advantage of technology innovation to slip away to America’s trading partners.

For the past 40 years, the political system in America has not addressed the fundamental structural economic weaknesses in American labor markets created by the loss of America’s technological superiority.

Fixing the American labor markets, in order to Make America Great Again, starts with re-claiming America’s comparative advantage in technology innovation.

Our podcast concludes that Trump’s new Apprenticeship Training program is the right policy model for making upward occupational mobility real again, but his program needs to be targeted to training and education in the nine high technology industrial clusters that create most of the technology innovation.

I am Laurie Thomas Vass, and this is the copyrighted Citizen Liberty Party News Network podcast for July 21, 2019.

Our podcast today is under the CLP topic category Economic Growth and is titled, Fixing the American Labor Market.

The tables and charts mentioned in the audio are available to view in the text version, on our website.

The most recent podcast of the CLP News Network is available for free. The entire text and audio archive of our podcasts are available for subscription, at the CLP News Network.com.

Obama’s Economic Legacy.

Obama’s economic performance was so bad, in terms of job losses, that he eventually terminated the statistical gathering operations at the U. S. Department of Labor that described mass layoffs.

Obama ordered the discontinuation of the “Mass Layoffs Data” collection program on March 1, 2013.

The data gathered from 2009 to 2013, when he killed the program, shows why Obama wanted to stop gathering the data.

In Obama’s first 4 years, a total of 32,000 manufacturing plants in America closed, nearly 6 million workers lost their jobs, and 6 million workers went on unemployment insurance.

Table 1 describes part of Obama’s labor market legacy.

Obama’s nonchalant response to the economic chaos was to state that those manufacturing plants, and those 6 million jobs were never coming back.

Table 1.

The manufacturing plant closings were concentrated in the nine most important technology clusters that were responsible for generating career entry into high wage jobs.

Table 2.  Job Losses in Manufacturing Sectors.

Entry level job openings in those technology sectors led to upward occupational mobility and high wage jobs.

The industrial sectors described in Table 2 can be re-combined into the industrial value chains that describe how industrial firms trade supplies with each other to create a finished product.

The nine high technology cluster of firms which trade with each other are:

  1. The advanced manufacturing cluster
  2. The glass and ceramics cluster
  3. The apparel and textiles cluster
  4. The forest and wood products cluster
  5. The biomed/biotech cluster
  6. The agribusiness/food processing cluster
  7. The IT cluster
  8. The chemicals cluster
  9. The defense and security cluster

After those nine high technology clusters were destroyed under Obama’s economic policies, America lost the internal labor market dynamics that created upward occupational mobility.

Table 3 shows that the job losses under Obama’s policies were concentrated in the large metro regions of America. The metro regions were critical to future economic growth because manufacturing plants, in a supply chain, like to be located close to each other in a specific metro region.

Almost 80% of all job losses under Obama were concentrated in just 50 of the nation’s 372 metro regions.

Table 3.

Obama’s European Socialist Economic Strategy

Under Obama, the rate of new job creation, from 2009 to 2012, was woefully inadequate to compensate for the loss of jobs.

Obama thought that massive increased government expenditures would overcome the job losses created by off-shoring manufacturing plants.

The economic term for Obama’s socialist policies is Keynesian economics.

Daniel Henninger noted,

“If the Democrats are willing to bet the entire U.S. economy on a 1931 theory known as the Keynesian multiplier, surely Republicans can excavate and relearn the core idea handed down to them by Ronald Reagan. That idea was known as economic growth.”

The European-style socialist policies adopted by Obama were promoted by Robert Reich, the socialist philosopher from the University of California at Berkeley and the Secretary of Labor under President Clinton.

Reich said,

“Obama’s plan is the boldest budget we have seen since the Reagan administration, and drives a nail in the coffin of Reaganomics. We can basically say goodbye to the philosophy espoused by Ronald Reagan and Margaret Thatcher.”

Robert Shrum, another socialist, and press secretary to Senator Edward M. Kennedy from 1980 to 1984, said,

“Obama is not only unwinding Reagan’s policies, he is offering a Rooseveltian paradigm that justifies government spending pragmatically.”

As Charles Krauthammer noted,

“Obama sees the current economic crisis as an opportunity. He has said so openly. And now we know what opportunity he wants to seize. Just as the Depression created the political and psychological conditions for Franklin Roosevelt’s transformation of America from laissez-faireism to the beginnings of the welfare state, the current crisis gives Obama the political space to move the modest American welfare state toward European-style social democracy.”

In other words, rather than trying to fix the American labor markets, Obama saw the economic chaos resulting from the trade policies, as a political opportunity to implement his socialist agenda of displacing the private sector with centralized government economic policies.

Obama’s European socialist strategy failed for two reasons.

The Obama Keynesian stimulus was built upon the logic, that a huge increase in government spending, aimed at the final demand markets would create jobs.

After the elimination of the industrial value chains, in the intermediate demand markets, there were no income and employment pathways for the Keynesian multiplier effect to follow.

The intermediate demand markets in America that provided private sector entry level jobs had all been shipped overseas.

The offshoring associated with the global value chain resulted in American high-wage high technology jobs being lost.

As a result of the global trade policies, the American labor markets had been replaced by foreign workers

For example, in the regional economy of Everett, Washington, before the trade policies, there were 350 U.S. engineers employed at the Everett Boeing plant, on the production of the Boeing 777.

After the trade policies, on the production of the Boeing 787, there were only 79 engineers employed at the Boeing plant.

As one engineer working on the 787 commented,

“Here in Everett, you see (foreign) suppliers walking around everywhere. They are co-located here … our people are spread out all over the world working with them … it didn’t occur to me just how integrated we all are until a couple of years ago … 1 walked into one of the first meetings of our new team and realized — hey, I am the only person for Boeing in the room and the only American.”

The offshoring of production for the 787 killed the regional industrial value chains in Everett, Washington, that used to supply parts to Boeing.

Second, Obama’s European-style socialism did not create jobs because it had no small business technology innovation investment component to it.

A one world government, with one seamless global market, supported by huge government spending, does not address the small business innovation investment problem of economic growth.

European-style socialism implies an elevation of multinational corporations to the stature of equal partners to government in the delivery of social and economic services.

The big corporations in Europe serve as tax donors and service delivery agents in the European society. The large corporations are the only partners big enough and stable enough for European governments to work with in implementing their socialist policies of income redistribution.

The European governments impose very high taxes on the profits of large corporations, and then distribute those tax revenues, as welfare payments, to the idle social classes who cannot find jobs in the European socialist economy.

Obama followed this same European tax and income re-distribution policy in America.

Since 2008, under Obama, income welfare payments increased from 35% of total government expenditures to 55%.

Obama’s legacy is to increase the power of the central government to the detriment of private capital investment in domestic private sector job growth.

His policies served to displace private sector investment with government spending, creating a permanent capital investment gap, and a permanent job creation gap.

Table 4 describes the capital market jobs creation gap created by Obama’s socialist policies.

Table 4.

In other words, Obama’s economic policy failed because it did not include a small business investment component, but it succeeded in using government welfare payments to create a majority of voters who vote Democrat.

Global Trade and National Economic Prosperity

Obama’s massive government spending plan worked in tandem with the Republican global trade policies.

In other words, the Republicans collaborated with both Clinton and Obama because the Republicans wanted a one-world, seamless global trading system.

Economists at Harvard Business School issued a report on the economic effects of the Republican trade policies on the national prosperity.

  1. After the implementation of the trade policies, American median real household income declined 7%, with incomes stagnating across virtually all income levels. Median household income remains below the peak attained in 1999.
  2. The job growth rate began to decline around 2001, and under Obama, the loss of jobs overwhelmed the rate of job growth.
  3. Private sector investment for equipment, intellectual property and structures began to decline in 1999. For 2010-2016, the average quarterly investment by business as a percentage of GDP was lower than it had been since the 1980s.
  4. The number of small business firms created in the U.S. was actually lower in 2010 than 1999.
  5. Under Obama, half of the country’s new business establishments created between 2010 and 2014 were clustered in just 20 counties, in the nation. Coincidentally, those 20 counties vote overwhelmingly Democrat.

Harvard economist George Borjas estimated that open borders and global trade reduced the wages of American citizens by an estimated $118 billion a year.

At the same time that American workers are losing $118 billion a year, the open borders global economy generates a net increase in profit for global corporation of $128 billion a year.

Much of the argument made by proponents of the one-world-government lobby rests upon a very slender statistical logic that global trade produces greater economic benefits, in the nation at large, than economic losses.

The economic benefits are measured in terms of increases in productivity. Most of the productivity economic benefits must be measured in dollars, not as jobs.

The proponents of Republican trade policies argue that increases in productivity in the nation at large, measured in dollars, theoretically, can compensate the losers, known as Pareto Compensation.

In other words, aggregate national income goes up as a result of global trade, and floats all the boats.

“Sometimes, achieving an efficient outcome requires the winners of free trade to compensate the losers,” said Kevin Kliesen, an economist with the St. Louis Federal Reserve Bank.

“Estimates of the net benefits that flow from free trade are substantial,” notes Kliesen. “International trade has increased real household income by between $7,000 and $13,000 since the end of WWII.”

It is not increased real household income that is being reflected in the statistics on global trade, it is the $128 billion increased annual profits for a very narrow spectrum of large corporations.

The increased corporate profits are aggregated into the statistics on household income, and do not describe the loss of income for American workers.

The corporate profits are held overseas bank accounts, and are not used to compensate American workers for their $118 billion in lost wages. 

Global trade and technology innovation

Global trade in goods and products is not the same thing as trading away the nation’s comparative advantage in technology innovation.

The distinction between global trade in goods, as described by Ricardo, is not the same activity as the global offshoring of America’s original factor endowment of technology innovation.

In their article, “Why Are Companies Offshoring Innovation,”  Lewin, et.al., estimates the impact of offshoring innovation projects. The results suggest that global companies are in a global competition for highly skilled talent.

The competition for global skilled labor is precipitated by the increase in American investment of their profits in overseas production facilities.

Since 1992, U. S. corporations with foreign operations have primarily invested their profits overseas.

Investment in overseas operations destroys the American comparative advantage in technology innovation, and destroys the American rate of economic growth.

The minimum required rate of investment in U.S. corporations just to keep the domestic economy running-in-place, and maintain the status quo is about $100 billion per year, about the same magnitude of the increase in foreign investment made by global corporations.

Between 2001, the year before the enactment of the worst trade and tax laws, U. S. corporate direct investment abroad was $119 billion. At the end of 2004, investment abroad was $219.8 billion.

In other words, one consequence of the Republican trade laws on U.S. economic growth has been to divert about $100 billion in capital investments to other countries, in a 3 year period, just about the same level as the increase in corporate profits obtained from the trade policies.

Diagram 1. Shows that under Obama’s tenure, the rate of investment in business equipment and machinery is not adequate to support economic growth.

Diagram 1.

Capital investments in high technology new firms.

Prior to the implementation of the global trade policies, small technology businesses hired 40 percent of high technology workers, such as scientists, engineers, and computer workers, right out of college.

Schilling and Phelps concluded their research on small technology firms by noting,

“…interfirm relationships are important engines of innovation because they enable firms to pool, exchange, and create new information and other resources. Results of studies suggest that the structure of networks affects innovation and that a rich mix of both large and small firms benefits from the structure among firms in the network.”

Kogut, et. al., (2000) also cited small firm supply chain alliances as critical to technology innovation. They stated,

“We propose that firms embedded in alliance networks that exhibit high clustering and short average path lengths to a wide range of firms will experience greater knowledge creation than firms in networks that do not exhibit these characteristics. We find support for this.”

The lead time from product innovation to job creation in small firms is longer than in global corporations.

Schilling noted that it takes an average 453 months for firms to develop products that are new to the world, (radical innovation) suggesting a four-and-a-half year lag from commercialization to job creation.

Similarly, Gomes, et. al., (2005) find that when firms cite prior alliance partners in their patents, they are most likely to cite partners they were allied with three to five years prior to the granting of the patent.

For product innovation in small business, the link to job creation generally occurs in the fifth or sixth year, after the product has entered the market.

In other words, the job creation effect from small business innovation occurs many years after the innovation enters the market.

Technology Capital Investments and Technology Commercialization.

The one world government centralized approach of the Republicans requires that the United States implement a federally centralized innovation program that feeds government-funded technological innovation directly into the multinational corporate value chains the same way that the European governments work.

In her recent work on global MNC knowledge networks, Schilling found a high level of “degree centrality” between 20 of the biggest global multinational corporations.

She describes degree centrality as the number of network connections between corporations.

For example, she found that,

“When the twenty most central firms are identified for each network snapshot, the same eleven firms appear in the list for over half of the snapshots, and one firm (Microsoft) makes the list every year.”

In other words, 20 large firms are responsible for most of the  technology innovation in America.

The global corporate value chains shut out small business value chains, and require a centralized government research funding strategy to feed research directly into global corporations.

Before the implementation of the trade policies, the close supply chain relationships within the small firms that were members of the regional intermediate demand market, created a high degree of knowledge creation and diffusion, in those specific metro regions.

Another term for regional knowledge is metro economic specialization.

Schilling and Phelps call this process “recombination of knowledge.” As they state,

“Small firms that have greater access to and understanding of these recombinatory resources produce more novel knowledge than other firms.”

After the implementation of the trade policies, the capital investment opportunities in metro regional value chains also disappeared, and the absence of investments in small business technology allowed America’s comparative advantage in technology innovation to be shipped overseas, along with the jobs

To summarize, the American labor market defects caused by the trade policies were:

  1. The rate of capital investments in small high technology firms is too low to offset the rate of job destruction resulting from global trade policies.
  2. The trade policies had the effect of destroying the American comparative advantage in technology innovation.
  3. The trade policies destroyed the metro regional interindustry supply chains that offered college graduates and skilled workers entry level jobs into internal career paths.
  4. The trade policies centralized technology research into universities that could feed the research directly into 20 large corporations, rather than benefitting small firms in the American labor markets.
  5. Obama’s socialist policies displaced private sector investment with government spending, which created dead-end service jobs, like hair dressing and bar tending.

Conclusion:

In June, 2019, the U.S. Department of Labor announced a major new program to expand apprenticeship training in the United States.

The major media outlets did not cover this news announcement, but the new program has the right components to fix the American labor markets.

The most important component of the new program is that it re-creates the portal of entry into high wage careers, through industry-recognized apprenticeship training.

The certification and exams at the end of the apprenticeship training will be conducted by private industry councils in the specific occupational fields.

The graduates of the training will have a transferrable credential, valid for life, which certifies their skill training. The transferable credential is the ticket to upward occupational mobility.

A private sector Standards Recognition Entity (SRE) will set standards for training, structure, and curricula in relevant industries or occupational areas.

The SREs would be recognized through the U.S. Department of Labor to ensure that its requirements are met,

The Department is awarding $183.8 million in Scaling Apprenticeship Through Sector-Based Strategies grants to private-public apprenticeship partnerships in information technology, advanced manufacturing, and healthcare.

Trump’s new program could be improved by implementing the administration and management of the program in specific metro regions, to begin the process of re-creating regional value chains.

In addition to the 3 targeted occupations, the program could be strengthened by expanding the training to high skill jobs in the nine metro regional technology clusters.

Finally the program could be improved by targeting small technology firms, and providing wage subsidies to small firms that do not have enough money to support apprenticeship training.

Currently, at $20 per hour of an entry level job, the small business faces an additional $15 per hour to support apprenticeship training. The additional $15 per hour should be compensated to the small business for managing the apprenticeship program.

Technology innovation was the initial factor endowment that provided job stability and upward occupational mobility, in the former period of time.

President Trump’s remarkable economic success is good, standing alone.

His success could be improved if he complements economic growth with a technology innovation component, based upon the apprenticeship skill training program.

I am Laurie Thomas Vass, and this podcast is a copyrighted production of the CLP News Network

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