Tuesday, May 15, 2007

Divergence of Interests

[posted by Callimachus]

"What's good for General Motors is good for America" may have been arguably true, but I don't think anyone would have argued the converse statement: What was good for America ultimately was good for General Motors.

One result of globalization, however, is that corporations have come unmoored from their national roots. Ever since Hamilton's day and all through the 19th century, the federal government devoted itself to nurturing and protecting "domestic manufactures." It was held to be among the highest duties of government. Yet the children raised under our guidance, and with our tax and tariff dollars, whose essential patriotism we assumed as a matter of course (so that company presidents naturally became "dollar-a-year men" in Washington during World War II) may have outgrown us.

I think globalization is a good thing, but not an unmitigated good. I am glad for what it has done to chase poverty and desperation out of the world. But I want it to be less painful here at home. And I am not at all sure it will turn out better for us in the end. I'm open to arguments such as that made by Ralph Gomory, a long-time senior vice president at IBM who helped "manage IBM's expanding global presence as jobs and high-tech production were being dispersed around the world."

The multinationals' overseas deployment of capital and technology, Gomory explains, is the core of how some very poor developing nations are able to ratchet up their technological prowess, take over advanced industrial sectors and rapidly expand their share in global trade--all with the help of US companies and finance, as they roam the world in search of better returns.

The Gomory-Baumol book describes this as "a divergence of interests" between multinational firms and their home country. "This overseas investment decision may then prove to be very good for that multinational firm," they write. "But there remains the question: Is the decision good for its own country?" In many cases, yes. If the firm is locating low-skilled industrial production in a very poor country, Americans get cheaper goods, trade expands for both sides and the result is "mutual gain." But the trading partners enter a "zone of conflict" if the poor nation develops greater capabilities and assumes the production of more advanced goods. Then, the authors explain, "the newly developing partner becomes harmful to the more industrialized country." The firm's self-interested success "can constitute an actual loss of national income for the company's home country."

American multinationals, as principal actors in this transfer of wealth-generating productive capacity, are distinctively free to make the decisions for themselves without interference from government. They want profit and future consumer markets. Their home country wants to maintain a highly productive high-wage economy. Without recognizing it, the two are pulling in opposite directions--the "divergence of interests" most US politicians ignore, evidently believing church doctrine over visible reality.

I even find something convincing in Alan S. Blinder, a self-described free-trade "apostate," who argues "there's something new about the coming transition to service offshoring. Those two powerful forces mentioned earlier -- technological advancement and the rise of China and India -- suggest that this particular transition will be large, lengthy and painful."

The stumbling block is, what to do about it. Federal regulation? One shudders at the first step down that path. The lesson we lerned, or should have, after 1919 is that the titanic financial engine that is modern America can't do the protectionist thing anymore. When we turn our back on the world and try to go back to nurturing domestic manufactures, the world rapidly goes to hell and soon it washes up putrid on our shores again.

Or this argument for the importance of labor unions, and the need to restore them to equal power with owners and bosses, through backing of the federal government, by the academic historian Nelson Lichtenstein:

The La Follette Committee investigations of the late 1930s did not generate any new legislation, but that heroic enterprise did something even better: it helped transform our understanding of the rights held by American workers, of their civil liberties and civil rights, whether they be exercised by individuals or in the collective. A twenty-first-century renewal of the spirit that infused that crusading committee could once again demonstrate to the public and to the Congress what constitutes a genuine effort to defend the rights of American workers and what represents a cynical corporate subversion of that union-building liberty. And should such a transformation take place, then the Employee Free Choice Act will be seen by all as but a modest, necessary first step in the reconstitution of freedom and dignity in the American workplace.

To his credit he doesn't fall into the usual left-side trap of thinking it was Ronald Reagan who killed labor unions. He traces their decline back to the early years of the Cold War.

Globalization is an example of a "worst except" situation: It's the worst thing, except for everything else that's been tried. Labor unions are another. They did a necessary job in arm-twisting the bosses and owners and politicians and the result was child-labor regulations, 8-hour days, a certain degree of job security and health care, and a general sense that workers ought to be treated better than slaves. Yet they are vulnerable to corruption and mob control, and they have been a deeply conservative and reactionary force in American history. As soon as they attained any degree of leverage with bosses in the early 19th century, they used it to force blacks from the workshops. You reached a point where the children in a struggling, blue-collar mill town missed three months of education because teachers were unwilling to give up free dental care and pay $4 a visit for teeth-cleaning.

As for the blossoming of workers' rights in the 1930s, I'm not so sure it is entirely the result of government action in isolation. I think the employers and owners looked out at a world where the liberal democracies were mired in depression, and the fascists and communists seemed to offer the promise of the future, and they saw the susceptibility of their own workforces to such ideologies, and they blanched. They gave up what they once had vowed never to surrender.

We're all the better for it, but it's not a happy story. It's also, perhaps, why the erosion of all that coincided with the unveiling of communism as a false god in the late 1940s, and accellerated with the end of the Soviet Union.