Rod Hunter has a good column this morning titled The Democrats and Trade. I purposely won’t delve into the political side of the article, although I continue to be puzzled by how the Dems have apparently lost touch with one of their heroes and one of the most energetic free traders in our nation’s history, John F. Kennedy. The two candidates from that party are now calling for highly intellectual policies such as a "time out." I think I saw something similar on Super Nanny last night.
Mr. Hunter first looks at the history of job creation and the impact of trade.
It is true that there is a lot of churning as jobs are destroyed, but even more are created as firms enter, exit or are resized in a dynamic economy. Back in 2004, Ben Bernanke, then a Federal Reserve governor, looked at Bureau of Labor Statistics data stretching back a decade and pointed out that about 15 million jobs were lost and 17 million created each year — an annual net creation of nearly two million jobs. What’s more, only about 2.5% of the jobs lost were a result of import competition. The vast majority of jobs lost were caused by changes in consumer tastes, domestic competition, and technology.
And then the specific impact on manufacturing jobs.
It is also true that U.S. manufacturing has been shedding jobs since the late 1970s, with workers increasingly moving into services. But we have seen this process before. In 1900, it took about 40% of the American workforce toiling on the farm to feed the country. Today, thanks to farm mechanization, agricultural chemistry and other innovations, a mere 2.5% of the workforce feeds the nation and exports about third of U.S. farm production.
This is very similar to an inquiry and analysis we performed a little over a year ago, when we determined that the impact of offshored and outsourced intermediate products really did not distort the productivity equation. It took quite a bit of digging and input from some top economists, but productivity improvements really have driven most of the manufacturing job loss. The growth of manufacturing output has been less than the growth of productivity, thereby leading to the painful consequence of lost jobs. And cheaper products for all of us.
But how does this impact the trade debate?
Trade is not the threat Mrs. Clinton and Mr. Obama allege. It is a central reason why American workers are among the world’s most productive and prosperous. An economy open to trade is also an economy free enough to thrive in a changing world. The U.S. doesn’t need a Clintonian trade "time out." It needs to continue expanding opportunities for American workers by doing such things as completing the Doha trade talks, which are bogged down largely over agriculture. Yet a new agreement is possible, and could promote growth in developing countries and expand opportunities for Americans in manufacturing, farming and services, where the U.S. enjoys a competitive advantage.
Mr. Hunter goes on to describe how trade can also be an instrument of foreign policy, and how protectionism can hurt policies completely unrelated to trade. Then he draws a distinction that many policy wonks simply don’t understand.
Rather than trying to shut the world out, however, the next administration needs to pursue the domestic reforms necessary to ensure that American workers can thrive in the knowledge economy. These include shoring up our education system, clearing obstacles to worker mobility by making health care and pensions portable, and replacing the hodgepodge of displaced-worker assistance programs with a single support, training and relocation system. The American worker, not the job, is the national asset.
That last line sums it up, and is also a concept that many companies also do not understand. That is why companies like Whirlpool will lay off thousands to chase cheaper labor costs, not knowing what they have lost.
The worker, and the knowledge, creativity, ideas, and experience in his or her brain, is the asset. They aren’t just a pair of hands, it isn’t just an hourly labor cost, and it isn’t just a job. The worker is an asset.