So here's this week's prep work for the quiz in its entirety. Hope you enjoy!
A protectionist US industry is the automobile industry. Prior to the 1970’s the US auto industry was the dominant industry worldwide. It supported a massive manufacturing labor force in the US and with pressure from labor created a set of labor protection laws that exceeded any known throughout humanity. The result was a huge middle class and an economic boom in this nation. In the 1970’s though, the price of fuel skyrocketed due to many international political factors. OPEC became a dominant force in the setting of prices of fuel and artificially raised them as a result. This forced the US economy into a downward spiral. Manufacturing was highly depending on fuel as were the big gas guzzling cars the US manufacturers were building. At the same time however, investments in education in the US were at a peak and the US workforce was becoming the most educated on the planet. This led to several diverging factors at the same time as the 1970’s closed. In Japan and Germany, capital was strong. They spent little on defense since the US took over the defense of those nations after WWII. This left many manufacturing companies and scientists focused on emerging industries like computers and automobiles. They built smaller cars that used less fuel and they employed and invested in educating their workforce to the highest standards possible. Their middle classes also rose in numbers making it possible for them to purchase their own and US automobiles, but the cars they were producing were of higher quality and more efficient. They were subsequently not as hard hit by the gas crisis as the US and were able to flood the US market with lower cost, more efficient cars just when the US markets were tanking from the crisis and the US population could no longer afford US cars or afford to drive them.
By the 1980’s the backlash was misdirected at the US labor force and unions for high wages and benefits when it should have been directed at the US government and manufacturing sector for focusing research on the defense industry instead of the industries that were employing most American’s in the Rust Belt. The workers were blamed for the crisis instead of the companies that were spending their resources on issues that did not look towards the future.
Technology was on the fast track world wide and had it not been for a strong computer industry built for the space race and the military (and a young kid computer genius named Gates who transformed that technology to be useful for the general public), the entire economy of the US would have tanked for decades instead of just the 1980’s. The auto industry was slow to realize their mistake. They struggled with Buy American campaigns, they watched factories close throughout the Midwest and the Japanese developed and perfecting just in time manufacturing to lower their productivity and costs. During the 1990’s, the auto industry in the US saw a temporary comeback with a well educated US workforce, but the backlash against the “greedy workers” spilled into a growing public that was on government assistance due to the collapse of the auto industry (in conjunction with the collapse of the family farm). Union membership was decimated and their power to negotiate minimalized with the closing of thousands of factories. Auto manufacturing’s first adjustment was to utilize the Japanese factories to build their parts and then to assemble them in the US. Huge tariffs on import autos especially from Germany where quality was high and costs were high as well slowed the import of those cars and put them in reach of only the upper middle class and wealthy, while the Japanese manufacturers continued to focus on small and fuel efficient technology and prices so low that the tariffs still could not touch their value to the American public. When the costs to import cars got too high, Japan adjusted again in the last few decades building Toyota plants in non-unionized areas of the nation like Tennessee. This boosted economies in those areas somewhat but had another affect on the auto industry in the last decade. Japanese and US manufacturers were importing parts, so US manufacturers did not heavily argue for protectionist policies on imported parts, only on whole cars. This led to the complete collapse of the US auto parts industry and cities like Gary, IN and Milwaukee, WI lost nearly all of their part manufacturing companies by the end of the 1990’s. The myth of the greedy union employee became the myth of the greedy welfare mom and the lower tax base led to fiscal crises in the Midwest. The same time, the Reagan, Bush and Bush administrations divested in the education of the American public. Only slightly more investment was made by the Clinton Administration in public and higher education. Cities like Milwaukee became testing grounds for the privatization of the public education system with dire consequences. Bush allowed a false housing market with artificially low interest rates and risky credit lending and unregulated credit markets to boost housing sales and refinancing of existing mortgages for people who no longer or could no longer be a part of the middle class. This gave the American public the false sense that their homes were worth more than they actually were worth and that their money was worth more than it was and the bubble eventually began to crash in late 2007. Rising gas prices again contributed to the collapse as the cost of gas went from 99cents a gallon in 1999 to $3-5 range throughout most of the 2000’s. Fuel efficient Japanese cars continued to dominate the market in the US and globally and US manufacturers were again caught behind the curve building huge gas guzzling SUV’s and Hummer’s for an American market delusional as to its own purchasing power. Mortgage refinancing gave the American public the ability to keep buying cars on income that they were not earning and with loans they increasingly could not afford. When the bad mortgages maxed out and the ponzi schemes came crashing down, the US auto industry which still had not made the leap to hybrids and smaller efficient cars crashed with it and by late 2008 the Bush administration was writing a trillion dollars in protectionist money to the mortgage and auto industries. Obama continued this policy and bailed out the financial and auto sectors to keep them afloat and save the spirally recession from becoming a great depression.
The auto industries have begun to come back in the US partly due to the fact that the American public increasingly wants cars that get 50 miles per gallon and partly because the government bailouts require them to increase the competitiveness of their cars with Japan. They are still behind technology wise however and an increasingly lower educated American public is not prepared to innovate as they were even 20 years ago. The future looks bleak for the American car industry unless they find ways to compete without relying on protectionist government policies and instead compete on better cars. Henry Ford once said, “I pay my employees enough to afford to buy my cars.” The US auto industry is not anywhere near able yet to compete internationally again with its cars and unless the American work force is quickly re-educated to innovate again for the future, the American workforce won’t be able to earn enough to buy American cars.
Obama has continued trade talks with countries such as Columbia, Panama and South Korea recently. http://www.nytimes.com/2011/02/10/business/10trade.html. Much of the criticism of NAFTA was that it approved free trade without provisions for the fair treatment of humans and the environment. The result has been an environmental and human disaster for NAFTA nations. Obama and the democrats in congress supporting labor have pushed to have these protections built into any new trade agreements. This seems to have slowed trade discussions down, but countries such as the new government in Columbia are open to these restrictions on manufacturing in their countries being built into the agreements. This is certainly a labor benefiting protectionist strategy as described by Bhagvati. The high track administrative protection of the US labor force by building the Voluntary Export Restraints (VER’S) and thereby protectionist policy into the “free trade” agreements is necessary though because while the US labor force has been displaced by the low cost labor force to our south, the US has not yet figured out politically how to increase our investments in high tech workforces and so the race to the bottom for the US middle class worker who used to have a high school education and now must have an advanced degree leaves millions unemployed which in turn puts substantial pressure on the government’s finances. The US needs time to “catch up” it’s workforce to the changing global economy and labor’s protectionist pressure on both Congress and the Executive Branch are predictable under Bhagvati’s theories. Conservatives however are taking a purely free trade approach to the agreements arguing that the cheaper labor force in developing NAFTA nations and lack of environmental, labor and safety controls means cheaper products for an increasingly poor US public that needs those products and higher profits for US manufacturers producing products internationally. They also cynically argue that we should never concern ourselves with the labor policies in other nations that employ child labor, have no wage standards, pollute the environment and poison the populations, and allow workers to produce products in working conditions that are arguably worse than the early 19th century in our own nation. They “get away” with this rationale because a large portion of the American public is ethnocentrically blind to the inhumanity of the corporations and because the inhumane practices are out of sight of the public since they are in nations Americans rarely visit or even study in depth in school. I argued a few weeks ago in my personal blog http://www.crawfordstake.com/2011/02/long-term-plan-is-much-much-worse.html that the corporate takeover of the GOP has an awful potential outcome and possibly even goal for the American workforce. It seems their policies may be directly motivated by a goal of creating a workforce in the US that can compete with the underdeveloped world at the underdeveloped world’s level. Political power in the US is assumed in economic circles to center on rational economic behavior of the principles. In other words, people will vote in their own economic self interests. This is not always the case in the US because of strong ideological forces, money imbalances among the players and Proposals such as eliminating prohibitions on child labor in Missouri certainly never would have passed a referendum by the people, but the legislators proposing them misled the voters using enormous amounts of political donations from the corporate center and distracting them with social issues such as abortion and exploiting the inherent subtle racism that arose in this country with the election of an African American president. This allowed corporate interests to seize control of the public’s support in states like Wisconsin, for example, in an election with low voter turnout. What we are seeing in Wisconsin is a wider sector of the public, not only unions or even traditional democrats but also farmers and non-trading sectors realizing that the government they voted for was not in their best interests. The national attack on labor unions that is front and center here in Wisconsin currently could only be with this goal in mind. By not investing in the advancement of, and temporarily, at least protecting the US labor force, the temporary solutions of the conservatives will long term lead to the decline of the purchasing power of the US public and eventually one of the largest markets for goods in the world will become one of the poorest populations in the world. Obama was attempting to do both investment in education and protection of the US labor force, but was stopped by the November elections. Neither will work without the other and the protectionist policies relative to the short and long term stability of the US economy depend on both happening as quickly as possible in the short term and on the protectionist policies bringing the rest of the world up to the standards the US labor force has fought for over a century in a faster and more efficient way.
It remains to be seen what will happen next.