Reports from the Economic Front

a blog by Marty Hart-Landsberg

Capitalist Globalization

The Obama administration continues to push new free trade agreements, arguing that they are needed to boost job creation.  The latest attempt is the Trans-Pacific Partnership (TPP).    So far nine countries are engaged in negotiating this free trade agreement: Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, and the United States.  The United States in particular is thinking big; it insisted that the agreement also have a “docking clause,” which means that it is structured to make it easy for other Pacific Rim countries to join.  Canada, Japan and Mexico have already expressed interest.

Following standard procedures, the U.S. trade representative is negotiating the terms of the agreement with other trade representatives with the support and active involvement of some 600 multinational corporations.  Unfortunately, they are the only ones who know what is being negotiated.  As the Eyes on Trade Blog writes 

Not only is the text secret during the negotiations, but all TPP countries signed a secret agreement to classify the negotiating texts for at least four years after the TPP goes into effect. After taking heat for this secret agreement that keeps everything secret, New Zealand was forced to release the text of the secrecy pact. Though neither the public nor members of Congress are permitted to view the negotiating texts, over 600 representatives from corporations have access to the texts, allowing them to steer the negotiations in their favor.

In brief—this is another terrible free trade agreement.  Beyond reducing tariffs what little we do know of the treaty suggests it will also include 26 chapters designed to enhance the freedom and profits of multinational corporations at majority expense.  There is nothing about this agreement that will promote jobs or a higher quality of life for workers in any of the participating countries.

One way to appreciate just how damaging capitalist structured globalization has been to the health of the U.S. economy is to read Michael Spence and Sandile Hlatshwayo’s study of trends in U.S. employment and value added in both tradeable and nontradeble sectors over the period 1990 to 2008.    

Starting with employment, the authors found that almost all job growth from 1990 to 2008 occurred in the nontradeable sector.  Specifically, there was a 27.3 million increase in jobs between 1990 and 2008, from a starting a base of 121.9 million.  Approximately 98 percent of that increase, 26.7 million jobs, was generated in the nontradeable sector.  Job creation in the tradeable sector was basically nonexistent in the aggregate. 

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In 2008, the nontradeable sector had 114.9 million jobs and the tradeable sector 34.3 million jobs. Government at all levels was the largest employer in the nontradable sector, accounting for 22.5 million jobs in 2008.  Health care was second, with a total of 16.3 million.  In terms of job growth over the period, health care generated the most new jobs, followed by government, with a growth of 6.3 million and 4.1 million respectively.  These two sectors together combined for approximately 40 percent of total net employment gains.  The other large job creating sectors were retail, accommodation and food service and construction.  In 2008, these five accounted for 73.5 million jobs or approximately 50 percent of total employment.

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Significantly, employment in both government and health care depends heavily on public spending.  Current austerity trends threaten to limit future employment gains in these sectors, foreshadowing future difficulties for U.S. workers.  Retail, accommodation and food service, and construction employment growth was largely supported by debt-financed consumption.  The end of the housing bubble will likely limit future employment growth in those sectors as well. 

As noted above, trends in employment creation in the tradeable sector have been dismal, strongly suggesting that workers have good reason to fear the ongoing restructuring of the U.S. economy in line with capitalist globalization plans.  Growing numbers of workers will be forced to compete for jobs in the nontradeable sector at a time when employment opportunities in that sector will also be limited. 

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Of course, the lack of aggregate job growth in the tradeable sector masks the existence of divergent trends within the sector.  In particular, globalization did produce employment increases in industries that service transnational corporations and their international operations.  As Spence and Hlatshwayo noted:

The tradable sector experienced job growth in high-end services including management and consulting services, computer systems design, finance, and insurance. These increases were roughly matched by declines in employment in most areas of manufacturing.

The loss of employment in the manufacturing sector was caused by the out-migration of functions in global supply chains associated with lower valued added per job. But as the emerging markets grow, they will compete for more sophisticated functions. This does not mean that the United States will lose all the sectors in which it has developed a comparative advantage—just that more potential competition is on the horizon.

Despite past growth, largely made possible by the rapid run-up in consumer debt, private sector employment gains in the nontradeable sector were not large enough to compensate for the lack of job creation in the tradeable sector.  Michael Mandel summed up the situation as follows:

Between May 1999 and May 2009, employment in the private sector only rose by 1.1 percent, by far the lowest 10-year increase in the post-depression period. It’s impossible to overstate how bad this is. Basically speaking, the private sector job machine has almost completely stalled over the past ten years.

Over the past 10 years, the private sector has generated roughly 1.1 million additional jobs, or about 100K per year. The public sector created about 2.4 million jobs.

But even that gives the private sector too much credit. Remember that the private sector includes health care, social assistance, and education, all areas which receive a lot of government support.

Without a decade of growing government support from rising health and education spending and soaring budget deficits, the labor market would have been flat on its back.

Total private sector wage growth, critical to any sustainable consumption driven expansion, has also stagnated.  As Jed Graham noted:

The increase in total real private-sector wages over the period 2001-11 was smaller than in any other 10 year period since World War II.  In fact its 4 percent growth rate was even lower than the 5 percent increase from 1929 to 1939.  To put that in perspective, since the Great Depression, 10-year gains in real private wages had always exceeded 25 percent with one exception: the period ending in 1982-83, when the jobless rate spiked above 10 percent and wage gains briefly decelerated to 16 percent.

Spence and Hlatshwayo also examined trends in value added in both nontradeable and tradeable sectors.  Significantly, the lack of net job creation in the tradeable sector, especially in manufacturing, did not translate into a decline in value added.  According to the authors, “Valued added in the tradable and nontradable parts of the economy grew at similar rates [over the years 1990 to 2008]. In fact, the tradable sector, though smaller than the nontradable, grew slightly faster and hence marginally increased its share of total value added, in marked contrast to the employment trends.”

Ironically, the cause of both the loss in employment and rise in value added in tradeable sectors like manufacturing was the same: the internationalization of production.  For example, the decline in manufacturing production was encouraged by multinational corporations shifting production to other lower labor cost locations. The rise in manufacturing value added was due in large part to the fact that, by cheapening the cost of production, such activity not only expanded the market for many manufactures (such as consumer electronics), it also widened the gap between final sales price and production cost, thereby raising both profit and value added.  Not surprisingly, then, according to Spence and Hlatshwayo, tradeable value added over the period 1990 to 2008 rose by 363 percent in electronics.

This outcome makes clear why U.S. multinational corporations, especially those involved in the tradeable sector, have embraced the internationalization of production and the free trade agreements that encourage it.  Of course transnational retailers have also benefited.  In fact, retailers like Walmart have aggressively pushed manufacturers to move their production offshore in order to lower production costs.  Finally, the new international division of labor has also created profitable opportunities for business and financial service companies.

In short, it is perfectly understandable why most major corporations happily support U.S. government efforts to enhance corporate mobility through new international agreements.  And given the negative consequences of these agreements for most working people, it is also perfectly understandable why they want the terms of negotiation kept secret.  At issue is whether we will find a way to deny them what they want.    

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