Chapter 3. The Failure of New World Order Globalism in Promoting National Economic Growth and Shared Prosperity.
Harvard economist George Borjas estimated that open borders and global trade reduced the wages of American citizens by an estimated $118 billion a year. [Immigration Economics, Harvard University Press, 2014.].
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 U. S. global corporations of $128 billion a year.
The increased profits are counted as a surrogate for increased productivity, in the government reporting methodology, because the increased profits were gained by a decrease in labor cost inputs.
Output increased with reduced labor cost inputs, albeit, the increased production occurred in China.
Susan Houseman, of the Upjohn Institute, provides an example of why the GDP statistics mask the weak domestic economic growth.
She explained that the $100 million price drop from intermediate inputs from China displaces $150 million in U. S. domestic economic activity, but the GDP data cannot capture that economic loss. [Understanding the Decline of U.S. Manufacturing Employment.,Susan Houseman, Upjohn Institute for Employment Research, 2018.].
“The greater the share of imported intermediates going into an exported good or service, the fewer domestic jobs will be generated. So clearly it’s important to be able to quantify the use of imported intermediates in, say, an exported piece of construction equipment. But the existing data yields no clue about whether export-oriented industries use more or fewer imported intermediates, relative to industries that principally produce for domestic markets.”
The increased profits of global corporations is accompanied by a reduced payback period for any new product created by corporate R & D, and reduces the length of time existing sustaining product innovations remain profitable.
The new dynamic of the global market requires any single corporation to be first to market, with a sustaining innovation, and then first to market again, with a second round of sustaining innovation, in the immediate future period of time.
Other corporations immediately see the profits being made by the first to market corporation, and copy the sustaining innovation.
The Chinese managers of U. S. production plants located in China, have an advantage in turning the subsequent sustaining innovations into products that mimic the new innovation because they are closest to the production process.
Many of these Chinese companies have become what can be considered as “national” champions for China in the global economy.
The majority of these “champion” companies are among China’s largest global companies and many are state-owned enterprises (SOE).
The SOEs’ mission is to support China’s rise as a global super power. Currently, 98 of the Chinese companies listed on the Fortune Global 500 list are state owned, including China’s 12 largest companies.
Recognizing that technological innovation plays a significant role in economic growth, the Chinese government introduced policies promoting domestic innovation in 2006.
Today, 42% of total profits claimed by publicly traded SOEs can be attributed to 20 companies, most of which are in protected sectors such as oil, steel and utilities. [Antonio Graceffo, China’s National Champions: State Support Makes Chinese Companies Dominant, Foreign Policy Journal, May 15, 2017.].
The Communist Party government commands government departments to give preference to domestic firms when selecting bids for government contracts
In certain industrial technology sectors, there are specific regulations banning foreign companies from entry unless the foreign patents are filed and held in China. [codified knowledge].
In other instances, foreign companies are banned from entry unless they agree to a technology transfer over to a local Chinese partner
After 2001, American corporations developed a symbiotic collaboration with the Chinese government that resulted in the competitive technological advantage of Chinese corporations, through deliberate technology transfer.
The U. S. corporations willingly, and willfully, agreed to turn American-made technology over to the Chinese government, in exchange for the short-term profits gained from production using low-cost slave labor in China.
As a result of Honeywell’s technology transfer efforts, China stole the technology for its nuclear warheads, including Honeywell’s guidance systems for the W-88 warhead capable of delivering 150 Kilotons within 80 yards of it intended target.
China stole from Honeywell the technology for testing these warheads through simulations and firing in camouflage mode.
China obtained from Honeywell the software for radar detection of operating attack submarines.
Under the trade agreements promoted by the Business Roundtable, China is using Honeywell’s avionics and aircraft technology to build the new Chinese commercial jet, the C919.
Chinese crony state communism could not function without the symbiosis of profits from American global corporate crony capitalism.
And, American globalist crony capitalism could not reap short-term profits and function without the Chinese communist model.
When the large U. S. corporations moved their regional intermediate supply chains to China, around 2002, they disconnected themselves from allegiance to the national economy, and functioned more as “citizens of the world” than American corporate citizens.
As Leonard Lynn and Hal Salzman note in “Collaborative Advantage,”
“U. S. multinationals are weakening their national identities, becoming citizens of the countries in which they do business and providing no favors to their country of origin. This means that the goal advocated by some U.S. policymakers of having the United States regain its position of leadership in all key technologies is simply not feasible, nor is it clear how the United States would retain that advantage when its firms are only loosely tied to the country.” (Issues In Science and Technology, Winter 2006).
The global corporate allegiance is to the global alliance with the Chinese Communist Party, facilitated by a corporate political lobbying agency called, the U.S. China Business Council.
Both the US China Business Council and a second corporate lobbying agency, called the Business Roundtable, are primarily responsible for implementing the trade agreements with China, and for writing the subsequent legislation that allows American companies tax-advantaged benefits from production in China.
The USCBC is a private, nonpartisan, nonprofit organization of approximately 200 American companies that do business with China.
As they modestly state on their website, the mission of the USCBC is to “Help Shape the World’s Most Important Relationship.”
Their membership overlaps with the members of the Business Roundtable, which provides added political muscle to implement their covert political activities in Washington.
About 75% of the 200 USCBC member companies are also members of the Business Roundtable, which has branch affiliates in major metro regions in the United States.
Diagram 3. lists a selection of the 200 American companies who are members of the USCBC.whose company names start with the letter “A.”
Diagram 3. Selected U.S. China Business Council Member Companies, Names Starting With letter A.
|Adobe Systems||Advanced Micro Devices,||AIG
|Air Products and Chemica
|Akin Gump Straus
|Albright Stonebridge Group
|Allen & Overy LLP
|Alston & Bird LLP
|American Express Company
Diagram 4. is an abbreviated list of member companies and CEOs in the Business Roundtable, just to provide a sense of the overlap between the members of the two political lobbying groups.
Diagram 4. Selected Member CEOs and Companies of the Business Roundtable Whose Company Name Begins With the Letter A Who Are Also Member Companies of the USCBC.
Chief Executive Officer
Chief Executive Officer
Chief Executive Officer
Chief Executive Officer
Chief Executive Officer
American International Group
Chief Executive Officer
|Juan R. Luciano
Chief Executive Officer
Archer Daniels Midland
The full member list for the US CBC member companies is available on their website. https://www.uschina.org/
The full member list of companies in the Business Roundtable is available on their website. https://www.businessroundtable.org/
The Business Roundtable spent close to $10 million on lobbying members of Congress for Normal Trade Relation (NTR) passage, in 2001, at that time, the largest-ever political lobbying expenditure for a single special interest legislative issue.
Ordinary middle and working class American citizens, in 2001, did not have a comparable political lobbying agency to protect their financial interests.
As a consequence of the middle class political weakness, the two business lobby agencies were successful in damaging the social welfare of the middle and working class, while enacting legislation that benefitted the crony corporate class.
The research by Harvard professor George Borjas, cited above, shows a perfect symmetry between the $118 billion a year reduced the wages of American workers and the net increase in profit for U. S. global corporations of $128 billion a year, as a result of the global trade legislation.
The enigma of American crony capitalist corporations collaborating with communists is resolved by understanding that the crony Chinese state communism looks and functions just like American political system of crony corporate capitalism.
As Aligicia and Tarko explain, both the Chinese and American forms of cronyism can be categorized and placed into the larger framework of corporate global “rent-seeking.”
“Our thesis is that (macro) crony capitalism is yet another type of rent- seeking society, (macro) crony capitalism is not mere rent-seeking, it is a meta-rent-seeking mechanism for securing the rents at consistently high levels…it as a quasi-technical label meant to describe a political system rife with corruption.” (Huber 2002; Haber 2002). (Paul Aligicia and Vlad Tarko, Crony Capitalism: Rent Seeking, Institutions and Ideology, Kyklos, May 2014).
The three main components of both the American global crony national economic structure and the Chinese communist economic structure are:
- The global firms in the military-industrial complex.
- The global manufacturing industrial firms with a financial interest in obtaining foreign trade benefits, especially with China.
- The global banking and investment firms who coordinate global financial transactions in conjunction with global central banks.
The common characteristics of global cronyism, in both economies, is a preference for collectivist globalism, as opposed to promotion of a sovereign national economic interest, and a preference for fascist political decision-making by the ruling class, as opposed to citizen participatory decision-making.
Like the top-down, one party political system in China, the American global corporate crony political system is a one party top down system, managed by the business lobbyist agencies, based in Washington, which functions entirely independent of the consent of the governed.
The one party ruling class in America looks like, and functions like, the CCP in China that directs economic wealth to the communist “national champion” cronies in the political system.
Todd Zywicki places U. S. corporate cronyism into an economic exchange framework to demonstrate that that the parties who benefit from the crony exchange exploit those who bear the costs of cronyism.
“In the (implicit crony) exchange, the firm promises to share some of that surplus with politically-favored groups, such as labor unions or favored interest groups (such as environmental groups), and with the politicians themselves through campaign contributions and other means of support. Thus, the firms and their managers and shareholders gain what amounts to a sinecure and protection from the gales of creative destruction, and in exchange politicians can divert some of this flow of resources to their preferred policies and groups. (Todd J. Zywicki, Rent-Seeking, Crony Capitalism, and the Crony Constitution, Supreme Court Economic Review, Forthcoming; George Mason Legal Studies Research Paper No. LS 15-08; George Mason Law & Economics Research Paper No. 15-26. August 26, 2015. Available at SSRN).
In 2013, U. S. corporations paid U. S. workers in manufacturing jobs an average of almost $34 an hour in wages and benefits, or a premium of almost 9 percent compared with all other American jobs, according to the Manufacturing Institute, an affiliate of the National Association of Manufacturers.
In China, after the trade deals were implemented, the U. S. corporations paid Chinese slave labor $200 per month, or just under $1 per hour.
The difference between $34 per hour and $1 per hour, in Marxian theory, is called surplus labor value, which was shared between U. S. corporations and the Chinese Communist Party.
The Wal-Mart trade deficit with China cost more than 400,000 American jobs from 2001 to 2013
Cisco now has 2,000 people doing R&D in India. Those jobs for highly skilled, highly-paid workers, used to be located in America.
In his article, Exposing the Roots of Globalism, in American Greatness, Theodore Roosevelt Malloch, explains that globalism is the advocacy of one world government, based upon the idea of democratic socialism and world citizenship. [Theodore Roosevelt Malloch, Exposing the Roots of Globalism, American Greatness, April, 2020.].
“Former UK Prime Minister Gordon Brown is using the Wu virus to call for a one world government. “Now is the time for global leaders to create one world government to tackle the twin medical and economic crises caused by the Chinese coronavirus pandemic,” he urged on March 26, 2020.”
In Davos, the global banking and financial system is coordinated with the needs of the global corporations to smooth out the uncertainty in global markets. The IMF implements the daily directives of the Davos agreements.
The Non Government Organizations, including the World Trade Organization, the IMF, the World Bank, and the United Nations, administer and manage the global corporate relationships.
The trade agreements with China were not a mistake, they were a deliberate policy choice by global corporations to implement an economic system that allowed them to use Chinese slave labor to reap enormous profits. (Laurie Thomas Vass, Who Is It In America That Is Responsible For Implementing the Trade Agreements With China?, CLP News Network. March 2020.).
We agree with the analysis of Curtis Ellis, in his article, China’s Post-Virus Plan to Destroy America’s Economy, where he states that,
“The “respected voices” calling for America to lift the tariffs on China [in 2019], are simply swallowing Beijing’s sophisticated propaganda. China means to use this crisis to destroy us…Moreover, Beijing sees an opportunity in the pandemic to reverse President Trump’s call to move manufacturing out of China. China’s State Administration of Science, Technology, and Industry for National Defense (SASTIND), stated: “China will get more opportunities, including in the reduction of pressure for the international industrial chain to transfer away from China . . . The global epidemic has provided opportunities for improving China’s international position and countering anti-globalization.”
As a result of trade with China, there are less entry level jobs in upwardly-mobile industries in the U. S. that the young people can enter. Those occupational portals of entry were shipped over to China.
In the 1950s and 1960s, one part of the American economy that made America great was 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.
Manufacturing jobs were the single most important source of jobs that led to upward mobility because manufacturing jobs had such extensive employment multipliers in other industries.
Autor, Dorn, Hanson, et al. found that, when factory jobs disappeared, after 1992, that nothing showed up to replace them.
Displaced factory workers, and young people, have no entry points to the labor market. [David H. Autor, David Dorn, Gordon H. Hanson, The China Syndrome: Local Labor Market Effects of Import Competition in the United States, American Economic Review, October 2013.].
The reason that nothing showed up to replace the lost jobs was that the U. S. economic structure had been permanently damaged because the economy lost the ability to transmit the income and multiplier effects generated by manufacturing employment and production.
Moretti estimated that each additional manufacturing job, prior to 1992, in a city generated 1.6 nonmanufacturing jobs. [Enrico Moretti, Local Multipliers, American Economic Review: Papers & Proceedings, 2010.].
Moretti found even stronger multiplier effects of manufacturing for skilled jobs, in contrast to semi-skilled production jobs: an additional skilled manufacturing job in a city generates an estimated 2.5 jobs in local goods and services.
When the Business Roundtable was successful in moving manufacturing jobs to China, the entire occupation by industry matrix in the U. S. was destroyed, permanently.
The supply chains that used to transmit the multiplier effects disappeared, not because of automation and increased productivity, but because trade with China destroyed the income multiplier economic structure of the American economy.
The growth of the U.S. trade deficit with China between 2001 and 2017 was responsible for the loss of 3.4 million U.S. jobs, including 1.3 million jobs lost since 2008.
The permanent U. S. economic damage of new world corporatism as a result of trade with China is not simply the lost wages or the decline in social welfare of middle and working class citizens.
The corporate crony corporatism destroys the entrepreneurial capitalist dynamic of creating new technology ventures.
As the research by Decker, Ryan & Haltiwanger, et.al., , indicate, since 2001, the U.S. entrepreneurial economy has not been growing like the period before the off shoring of intermediate supply chains began.
“The pace of business dynamism and entrepreneurship in the U.S. has declined over recent decades. We show that the character of that decline changed around 2000. Since 2000 the decline in dynamism and entrepreneurship has been accompanied by a decline in high-growth young firms.”
The reason for the weakness in new venture creation is that the American corporate crony capitalist system is damaging the rate of new venture creation and technological innovation in the major metro regions.
The recent International Monetary Fund [IMF] report, World Economic Outlook, examined the economic effect of 88 banking crises over the past four decades. They find that, on average, seven years after a bust, an economy’s level of output was almost 10% below where it would have been without the crisis.
The national economies are not recovering to the economic levels of output attained in the earlier periods, before the bust. This economic failure, overtime, is not explained by general equilibrium theory, which predicts a return to the prior level of equilibrium after the bust.
Using Japan’s economy as an example of the downward ratchet, from its economic crisis beginning in 1988, Japan’s economy stagnated.
By 2002 Japan’s output was almost 23% below its 1988 GDP.
In the U. S., 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.
The number of small business firms created in the U.S. was actually lower in 2010 than 1999.
We argue that it this dynamic of Schumpeter’s entrepreneurial economic growth theory that is the point of attack on the global new world order corporatism.