// archives

Rust Belt

This tag is associated with 5 posts

Trump’s Trade Delusion

Halfway across the Pacific Ocean, Donald Trump heard the closing statements from the G7 summit in Quebec (which he had left early to meet North Korean dictator Kim Jong-un in Singapore).

All the G7 countries had signed up to an anodyne closing communique that papered over the huge gap between the United States and the other six on world trade – but Canada’s Prime Minister Justin Trudeau then said once again that he would answer Trump’s big new tariffs on steel and aluminum imports with new Canadian tariffs hitting US exports just as hard.

He had said it before, including to Trump’s face just the previous day. The other national leaders present in Quebec said exactly the same thing, and none of them had changed their positions before the final communique was agreed. But Trump flew into a rage.

No jumped-up leader of a rinky-dink country like Canada was going to get away with talking to the president of the United States like that. Trump retracted his endorsement of the joint communique, called Trudeau “very dishonest and weak”, and hinted heavily that his next target would be Canada’s car-making industry (which is almost completely integrated with its US counterpart).

No surprises here. The other countries of what used to be called ‘the West’ have grown used to Trump’s tweeted outbursts, and French President Emmanuel Macron restricted himself to saying that “international co-operation cannot be dictated by fits of anger and throwaway remarks.”

True enough, but what also needs to be said loudly and often (but generally isn’t) is that the whole confrontation over trade is irrelevant to Trump’s real political concern, which is vanishing American jobs. He’s not just barking up the wrong tree on this issue; he is baying at the Moon.

Trump’s line is that the very high unemployment rate in the United States (which he is almost alone among American politicians in acknowledging) has been caused by free trade. The evil foreigners took advantage of gullible Americans to make free trade deals, and then lured ruthless American manufacturers to relocate their factories in their low-wage homelands.

This only made sense for American manufacturers if there was more or less free trade between their new base and the United States, so that they could still sell their products back home without tariffs. For Trump, therefore, free trade is the mother of all evils. But while more than a million American jobs did get sent abroad like that in the 1990s, very few have been exported in the past fifteen years.

In the first decade of the 21st century, the United States lost one-third of all its manufacturing jobs, and the vast majority of them were killed by automation. They didn’t ‘go’ anywhere. They just vanished.

It happened first in what became known as the Rust Belt, because that was the main centre of assembly-line industry in the US. Assembly lines, which break a complex task down into a series of simple and highly repetitive actions, are the easiest thing in the world to automate.

Job destruction then slowed down until other new computer-driven technologies matured: self-driving vehicles, on-line shopping, ‘dark’ factories and warehouses. But they are ready now, and the carnage in retail jobs, driving jobs and warehouse jobs is just getting underway. To worry about free trade while this is going on is pure folly.

Not only has the ‘offshoring’ of jobs virtually stopped, but there is a new phenomenon called ‘reshoring’. Some American manufacturers are bringing their factories home, because with full automation you have to hire only one-tenth of the high-paid American workers you used to employ, and by reshoring you get to work in a predictable legal environment in your own language.

Trump can do a lot of damage to employment both elsewhere and in the United States by launching a trade war, but he cannot ‘bring the jobs back’. They are gone for good, and a lot more will follow. Automation may be slowed down here and there for a while, but eventually it will eliminate at least half the existing jobs – and the notion that it will create equivalent numbers of new good jobs is an amiable myth.

So while the leaders of other rich countries will have to divert some attention and effort to coping with the negative impacts of Trump’s trade war, they must not let that become their obsession too. It’s a side issue, though potentially a very expensive one.

In Canada, in France, in Japan, in all the developed countries, the real problem is the same as it is in the US: the inexorable advance of automation and the resulting hemorrhage of jobs. So devote most of your attention to that, and only respond to Trump’s declaration of trade war to the extent that is politically unavoidable.

In the end, you’ll be glad you did.
_________________________________
To shorten to 700 words, omit paragraphs 10 and 12. (“It happened…automation”; and “Not only…language”)

If The Model Is Broken, Fix It

If the model is broken, should you try to fix it, or should you scrap it and get a new one?

In questions of technology, increasingly the answer is: scrap it. Computer repair shops are dying out: if your laptop doesn’t work, just buy a new one. What applies to consumer technology, however, does not necessarily apply to politics.

The political model of Western-style democracy, which grew up alongside and then within a capitalist economic model, is now broken. Exhibit Number One is Donald Trump, but there’s lots of other evidence too.

One-third of French voters backed Marine Le Pen, a cleaned-up, user-friendly neo-fascist, in last year’s presidential election. In last September’s German election, one-eighth of the electorate voted for Alternative for Germany, a party whose more extreme wing is neo-Nazi – but it is now leads the opposition in the Bundestag, the German parliament.

Last month in Italy, the two biggest parties to emerge from the election were both led by populist rabble-rousers, one from the left and one from the right. Not to mention Brexit in Britain. And in every case the themes that dominated the populists’ rhetoric were racism, nationalism, hostility to immigrants – and jobs.

Trump rarely talked about anything else during the presidential election campaign: immigrants are stealing the jobs, free-trading American businessmen are exporting the jobs, the foreigners are eating America’s lunch. Down with free trade! America First! Etc.! (Hint: Donald Trump is not a Republican. He is a populist.)

Trump may not know a lot, but he knows One Big Thing. We are living in a new era of mass unemployment, and nobody has noticed. As Trump said the night after he won the New Hampshire primary in February 2016: “Don’t believe those phony numbers when you hear 4.9 and 5 percent unemployment. The number’s probably 28, 29, as high as 35. In fact, I even heard recently 42.”

It’s not really 42 percent, but it’s not 4.1 percent (the current official US rate) either. According to Nicholas Eberstadt’s ‘Men Without Work’, the real unemployment rate among American men of prime working age (24-55) – including those who don’t get counted because they have given up looking for work – is 17 percent.

Why didn’t we notice? Because the unemployed weren’t protesting in the streets like they did in the Great Depression of the 1930s, although the rate is getting up to Depression era levels. After the Second World War, all the Western democracies built welfare states, mainly so a new generation of radical populist leaders would not come to power the next time there is mass unemployment.

It has worked, in the sense that there is not blood in the streets this time around, but the jobless millions are very angry even if the welfare state means that they are not starving. They do vote, and unless something is done to ease their anger, next time they may vote for somebody who makes Trump look good by comparison.

But if the problem is unemployment, then the answer is not obvious, because the main cause of unemployment in Western countries is not immigration or ‘offshoring’ jobs, as Trump pretends. It is computers.

One-third of American manufacturing jobs have vanished in the past 20 years, and the vast majority of them (85 percent) were destroyed by automation. The algorithms and the robot arms have already killed the Rust Belt, and there is a plausible prediction that almost half of existing American jobs may be automated out of existence in the next 20 years.

What would our politics look like then? Not very democratic, unless we do something to ease the anger of the unemployed. This doesn’t just mean giving them more money – a massive expansion of the welfare state – but also finding way of taking the shame out of unemployment, because it is the humiliation of being seen as a loser that breeds the anger.

The leading proposal on the table right now is called universal basic income (UBI). Every citizen would get enough to live a decent life whether they are working or not, although most people would probably keep working as well in order to have more money. And making it ‘universal’ takes the shame and anger out of it: UBI would be a birthright, not charity handed down to those who have lost their jobs.

UBI may not work in practice, but at least it is addressing the right problem. And there is enough money to take this approach: the jobs are being destroyed, but Western economies are still growing richer.

Whatever the solution is, it has to tick two boxes: putting money in the pockets of those without work (which is very much in the interest of the owners and managers, whose business model is also broken unless their customers have money to buy their goods and services), and doing it in a way that does not breed humiliation, resentment and radicalism.

Some may argue that this is saving capitalism, not smashing it, and they would be right. But evolution is better than revolution, and fixing the model that is currently broken, essentially by a major expansion of the welfare state, is a better bet than abandoning it.
_______________________________________
To shorten to 725 words, omit paragraphs 2, 11, 15 and 16. (“In questions…politics”; “But if…computers”; and “It may…radicalism”)

(Not Quite Universal) Basic Income

In Switzerland last June, they had a referendum on a universal basic income that would have given each adult Swiss citizen $2,500 per month. It was a truly universal basic income, because it would have gone to everybody whether they were working or not – and the horrified Swiss rejected it by a majority of more than three-to-one.

In Finland last January, the government actually launched a pilot programme for a “basic income”, but it was a timid little thing that gives the participants in the trial just $600 per month. It certainly isn’t universal: it only goes to jobless people who are receiving the lowest level of unemployment benefit.

And in Canada last Sunday, the province of Ontario launched a pilot programme that sits somewhere between the other two. It pays out more than the Finns – CAD $1,400 a month (US $1,050). Moreover, you don’t have to be unemployed to get it, just poor.

“The project will explore the effectiveness of providing a basic income to people who are currently living on low incomes, whether they are working or not,” explained Ontario Premier Kathleen Wynne. But it’s still far from universal, and its supporters are keen to stress that the ultimate goal is to get people back into work. As is Finland, they believe (or at least profess to believe) that the only real solution to poverty is full employment.

In the early 21st century, this quaint belief is about as credible as the Easter Bunny, but in last November’s US presidential election campaign both Hillary Clinton and Donald Trump were still peddling the same sepia-tinted fantasy of crowded assembly lines and the return of the Good Old Days.

Trump was even promising to “bring back the jobs” from abroad, as if they were all now sitting in China or Mexico. He may or may not know that most of the missing jobs whose loss created the “Rust Belt” were killed by automation and simply don’t exist any more, but he certainly doesn’t mention it in public. And Clinton was equally reticent about the fact that full employment is not a realistic option for the future.

A lot of other people have finally focussed on the real future, however, because if you want to understand the rise of Trump you first have to acknowledge what automation is doing to jobs, especially in the United States. And then you have to figure out how to prevent this huge shift from causing a great political, economic and social disaster.

That is why Universal Basic Income is now a hot topic in political circles throughout the developed democratic countries: it might prevent that disaster. But the curious thing is that none of trials now being undertaken is actually universal, with everybody getting the same “basic income” regardless of what other income they may have. Why not?

UBI is not meant to be merely a more effective and less bureaucratic means of helping the poor. It is also intended to abolish the stigma of “unemployment” and the misery, anger, and political extremism it breeds. If everybody gets the basic income as a right, the argument goes, then receiving it causes neither shame nor anger. And if the anger abates, then maybe democratic political systems can survive automation.

But nobody really thinks we should introduce UBI at a national scale today. We will need a majority of people to go on working for a long time to come, and we don’t even know whether enough people would choose to do so after they start receiving the basic income. That is one of the questions that the current pilot programmes are designed to answer.

However, these UBI test programmes are being smuggled in disguised as anti-poverty projects, with the announced objectives of streamlining the system and encouraging people to re-enter the job market. That’s because the public really isn’t ready for full-blooded UBI. There is a very strong popular belief that people should work for a living, even if the society as a whole is very rich and the work doesn’t actually need to be done.

This prejudice applies especially strongly to the poor. As Harvard economist John Kenneth Galbraith once put it, “Leisure is very good for the rich, quite good for Harvard professors – and very bad for the poor. The wealthier you are, the more you are thought to be entitled to leisure. For anyone on welfare, leisure is a bad thing.”

So these early experiments with guaranteed income pretend to be aimed solely at getting people back into work. But meantime they will be gathering valuable data about the actual behaviour of people who have a guaranteed basic income.

When the supporters of UBI come back with concrete proposals for national systems in five or ten years’ time, they may have much more solid arguments than they do now.
_________________________________
To shorten to 725 words, omit paragraph 6. (“Trump…future”).

Dutch Election

The Dutch political system may not have been deliberately designed to produce middle-of-the-road outcomes, but it certainly works that way in practice: many small parties, multi-party coalitions to create a majority government, perpetual compromise. It is almost impossible to radicalise a system like this, but Geert Wilders is going to try.

Wilders is the founder and leader of the Freedom Party (PVV), which currently holds only twelve seats in the 150-seat Dutch parliament. But he is aiming to make it the largest single party in the March 15 election – which, in ordinary times, would probably give it the leading role in the next coalition government.

But these are not normal times, and the PVV is far from a normal party. It really only has one policy – stop the immigrants – and it is unshamedly racist and anti-Muslim in its rhetoric. Wilders recently called Dutch residents of Moroccan origin “scum”. He vows to close mosques and Islamic schools, ban the sale of the Koran, and stop all further immigrants or asylum seekers from Muslim countries.

He is the Dutch Donald Trump, a silver-maned provocateur who deploys the maximum possible nastiness in his campaign talk and his frequent abusive tweets. In fact, some people argue that Trump must have taken lessons from Wilders, who has been working this side of the street for at least a decade already, but the concept of convergent evolution probably applies. Populists are almost always racists too.

Which brings us to the question that is most interesting for people who don’t live in the Netherlands. Can racism and xenophobia alone, without any help from economic desperation, persuade a traditionally liberal Western electorate to cast its values aside and vote for an authoritarian bully with an anti-Muslim obsession?

Trump had lots of help from economic despair. The key voters who gave him an electoral college victory last November were in the Rust Belt states: men (they were mostly men) who would usually have backed Democratic candidates, but switched to Trump because he promised to “bring back the jobs” and stop the non-white immigration.

There was certainly a large element of racial panic in the American vote. A survey by Zack Beauchamp of the opinion polling and recent academic research on the topic, entitled “White Riot” and published on Vox on 20 January, documented the argument that “the real sources of the far-right’s appeal are anger over immigration and a toxic mix of racial and religious intolerance.”

On the other hand, the Rust Belt states south of the Great Lakes, the former industrial heartland of the United States, are the places that have suffered the greatest job losses over the past few decades, which is why cities like Cleveland and Detroit are decaying and partly abandoned. And they are emphatically NOT major destinations for new immigrants to the US.

Trump himself always ensures that he hits on both immigration and job losses in his speeches and tweets, and he is the world’s expert on the fears and prejudices of his supporters. Could we perhaps speculate that his supporters say that they are frightened about immigration and especially Mulim immigration, but that their racism is really driven in large part by their anger at the steep decline in the number of well-paid industrial jobs?

Of the six states with over a million immigrants – California, New York, Texas, Florida, Illinois and New Jersey – only Florida (where Trump won by a whisker) and Texas (which has voted Republican in every presidential election since 1980) voted for Trump. California, whose ten million immigrants make up 27 percent of the state population, voted two-to-one for Hillary Clinton.

It would seem that, in the words of the old Phil Spector song, to know, know, know them is to love, love, love them (the immigrants), or at least not to fear them. Whereas Michigan, a Rust-Belt state that voted Democratic in the previous six elections and where only 6 percent of the population are immigrants, voted for Trump.

You can see the same pattern in the Brexit vote in England last June. The prosperous big cities are where the immigrants are, and every one of them except Birmingham voted Remain (in the European Union). London, where half the school population is non-white, voted Remain by a 60-40 majority, as did Manchester, Liverpool and Bristol.

The narrow Leave majority countrywide was won in depressed northern industrial cities where immigrant populations are low, and in prosperous rural areas where there are virtually no immigrants at all. So there was again racial panic at the changing ethnic face of England in areas where immigrants were largely absent, but especially in post-industrial areas where they are (wrongly) blamed for the loss of well-paying jobs.

In populist revolts elsewhere, the manifest racism and anti-immigrant sentiment that dominated in the opinion polls masked a deeper resentment about the loss of jobs. In the Netherlands, where unemployment is only 5 percent, Geert Wilders is depending on racism alone, and he is not heading for a Brexit- or Trump-style victory. The latest opinion poll gives him just 15 percent of the vote.
___________________________
To shorten to 725 words, omit paragraphs 12 and 13. (“You..jobs”)