Tuesday, March 7, 2006

Times Op-Ed, Foreseen

Today, Terry McKenna continues his weird (and frankly rather eerie) habit of anticipating Paul Krugman columns. I will swear on a stack of Qurans (or satiric cartoons, whichever you prefer) that McKenna sends me these posts well ahead of the appearance of the Krugman columns (in this case, he was two days ahead of Krugman). Now this is about the third time this has happened, so unless Terry is (a) psychic or (b) friends with Paul Krugman, something is happening that surpasses the normal grasp of serendipity. I've just got to do a better job of getting these online as soon as I get them.

So if you have access to Times Select, check out the Krugman piece here, and then follow Terry as he explores the same conceptual territory as the Professor from Princeton. Mr. McKenna, the blog is yours.

Outsourcing is a familiar topic, but since the president brought it up during his trip to Asia, I thought I’d have a go at it as well. Speaking to a group of Asian students, George Bush warned us that we can either wall ourselves off from foreign competition, or we can protect ourselves from the pitfalls by our getting the education necessary for us to compete in a global economy.

As usual, it’s a bit more complicated than that. The sad fact of the matter is that even with the best education, a job seeker in the modern world can be done in by e-technology. Thus in my own part of the financial services industry, the maintenance programming necessary for our legacy systems is often outsourced, and in some cases, so is routine transaction processing. High dollar value transactions are still managed by various home offices, but as web technology and imaging (replacing paper) become the rule, it will be possible to farm out all of our work to the lowest bidder. Thus, there are no guarantees of a livelihood unless your career demands your physical presence in your own locale. Hmm, better to be a carpenter than an accountant? Maybe.

Is this a better world?

The president favors a simplistic yes answer. But his yes is based upon a fear that any economic restraints become shackles similar to those of planned economies (the sort that failed under communism). But it has never been that simple. Vigorous economies can exist despite many layers of taxes, labor regulations and import controls. (Thus we see prosperous Europe with high taxes and generous social welfare benefits*). Furthermore, opening ourselves up to all manner of competition only works if our competitors are playing the same game – but they clearly are not. Thus, China, for one example, takes our raw materials, but only buys the finished goods that it is not yet prepared to make. And if an American merchant wants in, he or she must find a local partner. Trade with Japan is similarly impacted by business practices that are illegal but allowed. Thus industry cartels control bidding on lucrative contracts, and the share that goes to foreigners is as little as the cartel can get away with. (Japan has promised to change – but don’t hold your breath.)

So over the past 40 years, in the US, we have encouraged manufacturing to all but disappear - for the false promise that the beneficiaries would buy more from us. They do buy more, but not enough to offset the mess that job losses have made to regional economies from the Great Lakes to the American South.

And no, I’m not saying that most of these losses were not inevitable, but had we developed a more nuanced trade policy with residual protective tariffs, the pace of change might have slowed. And surely, more manufacturers might have remained afloat (for one example, read this).

And to think, it started not because of economics, but because of foreign policy. America sacrificed its economic advantage after WW2 in favor of Japan and Europe – especially Japan. By the late 1950’s, the US needed Japan as an ally against the “communist menace.” The federal government ignored the dumping that was going on, and gradually our consumer electronics industry disappeared. Over time, we also lost fine printing, machine tools and even shoe manufacturing. Four decade later, we are even losing furniture to the Chinese – who have almost no wood.

Go figure.

—T. McKenna
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* Regarding Europe: there is some indication that European labor laws are so restrictive that they inhibit hiring; thus Europe’s high unemployment. But any discussion of the difference between US and European unemployment must include an understanding that US figures do not include discouraged nor part timers – so may be falsely low.

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