The struggles of businesses and market share are problems most Americans don’t see as a major part of their lives. Most people want good jobs from a good company and they assume that they will be able to work hard for a good wage, get decent medical benefits, and retire with a decent pension. The intricacies of anti-trust law or federal regulation are irrelevant. However, these economic policies directly affect the American worker and only when their effects trickle down to the average American do they look around and start looking for something or someone to blame.
The Great Recession obliterated home prices and raised the ranks of the unemployed, so terms like the 1%, outsourcing, and illegal immigration became hot topics. Nonetheless, these trends didn’t start there, they merely came to a head as a result of decades of policies. Free Trade agreements, outsourcing, stock buybacks, the trade deficit, the educational system, and scaling back of anti-trust enforcement all have had a role in America we see today. Gone are the days when you could ignore the government’s unintelligible policies because now they affect your present and your future.
Free Trade Agreements
If country 1 who is good at making product A and country 2 who is good at making product B decide to enter a trade agreement the idea is that country 1 will make more of product A to sell to country 2 and vice versa. By eliminating protective tariffs designed to keep country 1’s manufacturers of product B competitive (and vice versa) country 1 can focus on producing more product A which it is good at and sell the excess to country 2 who is also doing the same thing but in reverse. This in theory should lower the cost of products and enhance the profit margins of both countries which benefits everyone. The workers of country 1 who made product B will have to learn to make product A, but the enhanced profit margins and efficiency should make up for that to the benefit of everyone. This is supposed to be what free trade agreements do improve efficiency and lower costs to the benefit of everyone.
NAFTA at the time its inception was the largest free trade agreement in the world, it opened the borders between the United States, Canada, and Mexico. It also obliterated small Mexican farms who were immediately flooded out by cheap American agriculture who at government subsidized prices and an industrial scale were significantly cheaper than Mexican produce. At the same time droves of manufacturing jobs most notably car manufacturers shipped their factories to lower wage Mexico at the expense of the blue-collar middle class worker. Companies benefited enormously by the improved efficiency while the lower and middle classes of people in the affected industries from both countries were flung down the economic ladder. The new jobs created by the change in economy did not fully replace the old ones and for the few people who managed to switch they often received significantly smaller wages. Corporations benefited by having lower costs and a larger market to sell their goods and services. Some of those lower costs came from improved efficiency, but a large part of them came from the significantly cheaper labor.
The Trans-Pacific Partnership if ratified by all member countries will be the new largest free trade agreement in the world and includes much of Southeast Asia, most of North America, parts of South America, Australia, and New Zealand. It is likely to send many manufacturers to low cost labor countries like Vietnam and flood the Asian market with cheap agriculture products. It also extends intellectual property laws including controversially pharmaceuticals. It contains some almost meaningless environmental reforms and many other smaller measures in its enormously long print. Obama parades himself as a middle class warrior, why would he push through a deal that is going to harm the middle class? Why would he not only support but champion a deal that in a past life harmed the middle and lower classes of two countries?
The answer is simple: competitiveness. If the United States doesn’t trade with others the goods they buy become more expensive, industries become less competitive and as a result innovation suffers. Eventually the best businesses move abroad to take advantage of the global market. Isolationism has never vaulted a country to economical supremacy or even a golden age within its own borders. Free trade is more of reaction than a decision. However, while the United States has the ability to dictate terms, Obama decided to create the rules before another economic powerhouse (China) could implement their own.
Adapting the Work Force to the Global Economy
If free trade is an eventuality how can we prepare so that we don’t lose jobs and erode the middle class? The answer has been to change industries to the ones that benefit from the free trade. While manufacturing has been steadily declining, the service industry has boomed with jobs such as computer design and engineering increasing by droves. However, a lot of old manufacturing workers don’t have the skills to change jobs let alone industries and the decent paying middle class manufacturing jobs are replaced by near minimum wage jobs overnight. How are they supposed to take advantage of the new freer economy?
Unfortunately, many skills don’t transfer over because manufacturing work wasn’t too technically difficult to begin with. Hence why people with a high school education could graduate and work in the factory for 30 years with only on the job training. It is the same reason it is so easy to outsource many jobs because they are easy to learn. Ironic, that the same people who complain about low-skilled people who want to raise the minimum wage, complain themselves about losing low skilled manufacturing jobs to outsourcing. An adjustment of the minimum wage is long overdue to tie the rise in business profits to the common people. Nonetheless, the United States wants higher paying, higher skilled jobs to replace these jobs and keep us at the forefront of the world. Therefore, people need to be trained in these higher skilled areas.
Government support for changing jobs and industries has been abysmal and worse so in other countries like Mexico. The United States faces a weird dilemma where we know high school education is inadequate, we know good paying low-skilled jobs are diminishing, but we still don’t want to fund any additional type of training whether that be trade school, community college, or university. Germany has a centuries old educational system that works with manufactures and business to prepare their youth for jobs in the trades or for the university. The government subsidizes training designed by industry to ensure that people have the skills they need to work. The German system is not easy to imitate, but it does provide a simple guideline for success in the modern economy. Find ways to train the workforce in skills that industry wants and needs. Germany did and has an advance manufacturing sector that has a positive trade balance despite competition from all the other cheap manufactures around the world. Why? Because their workers are better trained to produce products that the cheaper manufacturer’s labor force is not capable of.
The United States is the third most populous country in the world and some jobs can’t be exported. Some jobs are always going to be low paying like fast food work, waiters, and cleaning services. However, is it justified that they are so low paying you cannot live off their wages while the corporate structure of these jobs grows by leaps and bounds probably not. On the other hand there are some skilled jobs that can provide a decent middle class income like electricians, plumbers, and mechanics. As the Germans have proved even manufacturing can be high paying if it is skilled enough. Petrochemical manufactures often have no more than a two year degree, but it is a very high paying job. Construction and mineral mining (including oil and gas extraction) are also skilled jobs that don’t require a college degree, but do require additional training beyond high school.
Industry no longer wants to foot the bill for training people to do higher skilled tasks. A major reason is sometimes they don’t have the knowledge base to retain the information given (another failure of our educational system) and that is an expensive investment to make. Therefore, the government must fill in the gap. Obama has proposed free community college for everyone which is significantly cheaper than the free state university proposals floating around. Community college teaches skills that can translate not just to the university, but to industry and would proportionately help the lower and middle classes adapt to this freer economy. People need to be better trained and educated to be a part of the new global economy the catch is teaching them and the politicians to understand that.
Regional Concentration of Wealth
The Atlantic has an article that documents how wealth has been accumulating in a few large major cities at the expense of other American cities and that affects everyone in terms of employment, cost of living, and access to opportunities. In the trust busting prime of the United States, the president and the courts zealously held in check the power of companies. They would block any company from seizing too large a market share outside of its own region. The government regulated industries that could influence trade such as railroads, airliners, pipelines, and banks and made sure that each region could compete in its own markets. As a result, each region started to develop thriving local business. Towns had their own regional banks, retail stores, grocers, restaurants, utility services, and transportation lines. By building their own businesses in a variety of industries and with the government limiting the market share other cities and states could impose on another region, American cities started to converge in per-capita income.
Then the convergence of incomes in all towns shifted direction swiftly as a result of deregulation and lax anti-trust regulation. Companies from major cities started to balloon and impose their will on different regions. Smaller local businesses started to be snuffed out and companies grew to monopolic proportions. The profits they made in a region were shipped off to their headquarters and benefited the business executives there. This once again widened the income gap between cities like New York where over half of the top 10 banks are headquartered and St. Louis. It magnified the chasm in property value and savings between regions such as the San Francisco Bay Area home to the tech companies Google, Apple, Microsoft, Netflix, and Intel and the former manufacturing mecca of Detroit. However, towns like Bentonville, Arkansas headquarters of Wal-Mart and the ascension of Houston who headquarters numerous oil companies demonstrates how these companies can end up benefiting previously obscure cities. Perhaps this is simply the free trade principles at work on a more local scale. By regions focusing on what they do best they can produce goods and distribute them across the country to the benefit of everyone. All the income and price differences can simply be cost of living adjustments by region.
Exxon’s new campus in the Woodlands a suburb of Houston.
Comparing property and goods values vs. median income discounts that line of thought. While the average income is substantially higher in high cost cities which then causes people with those higher wages to bid up the cost of goods and services especially housing, it is actually a small part of the population who disproportionally raises the standard of living. Not only real estate, but also food and other services are substantially higher in New York than in surrounding areas which pushes the lower and median wage earners further and further out of the city. Even in the new emerging cities property values are gentrifying entire areas and pushing the working class further and further from the city center even as on average the city is growing by leaps and bounds. This concentration of wealth by city is actually hurting the lower and middle class while improving the life sometimes dramatically of the top 10% . This is the textbook example of the concentration of wealth and it isn’t just people this phenome affects but also entire regions. If you are fortunate enough to work for a great job in one of these areas you experience a dramatic standard of living upgrade that counteracts the cost of living. If you couldn’t find a great job or don’t work in these areas this trend is directly siphoning your wealth.
Monopolies
More in line with how the power and wealth of the 1% has increased at the expense of the middle class, are how certain companies have taken a stranglehold over their respective industries with little or negligible competition. Its no secret that the banks that were “too big to fail” are in fact even bigger and on top of that the United States has bred some of the world’s largest corporations who have control over huge market share in their specific sectors; most notably tech companies such as Google, Microsoft, and Netflix who basically own their respective markets. These bohemians own specific segments of tech that are too young or nuanced to fall prey to anti-trust suits. For instance Google controls over 75% of the online search engine market share in the U.S. and over 60% over the world with the next closest competitor Bing not even breaking 20% abroad or at home. Another example Netflix owns over 50% of the streaming market with Amazon Prime sitting at a laughable 3% and even the mighty YouTube trails at around 20%. However, another more established industry, retail’s top dog Wal-Mart the largest company in the world by revenue only has a market share of about 12% of retail sales. However, another more traditional business and one that was the subject to much scrutiny in light of its role in the recent financial crisis has 5 banks with almost 45% of the industry assets while the remaining 6500+ banks fight over the rest. Even who you get your internet from (and if your like over 50% of America even with the failed merger with Time Warner it is Comcast) and how big a deal net neutrality was tells you the increasing concentration of individual markets under a small number of companies. The concentration of revenue and income among fewer hands siphons money away from certain areas and places it into regions where these companies are based or do the majority of their business.
Conclusion
The economy has changed and there is no denying that. However, the government still parades around antiquated principles as people lose purchasing power and economic worth then proceed to blame people and circumstances that are no longer relevant. To make matters worse an almost zealous belief in the sanctity of the free market causes the government to turn a blind eye to the growing power of corporations at the expense of lower and middle class Americans. So what can be done?
First we must recognize we are in a global economy and the jobs of yesterday either don’t exist or are not going to pay as much as before. Therefore, as potentially devastating as free trade is it is inevitable and it is in our best interest to shape the rules to maximize our benefit. So we must adapt, we must train our workforce to be better, and allow companies to innovate and have the skilled workforce to support them. Second, we have to acknowledge corporations are getting too powerful and rather than the consolidation making things more efficient we have to recognize it is simply transferring wealth to the rich with no tangible benefits for the majority of Americans. In order to change this pattern the government must combat the giant corporations who are strangling regions and the American people.
Links
http://www.cnbc.com/2015/04/15/5-biggest-banks-now-own-almost-half-the-industry.html
http://www.forbes.com/sites/joelkotkin/2014/08/14/the-most-influential-cities-in-the-world/3/
http://greengarageblog.org/12-important-pros-and-cons-of-free-trade
http://www.usgovernmentspending.com/gdp_by_state
http://www.piie.com/publications/chapters_preview/6727/04iie6727.pdf
http://www.economist.com/node/21552567
https://www.whitehouse.gov/issues/economy/trade
GDP Data for Cities and their main industries via the Bureau of Economic Analysis
NYC area – ~$1.5 trillion GDP ~$0.5 trillion in financial insurance or real estate services 49% real estate ~$219 billion in professional services
Chicago ~$600 billion GDP ~$150 billion financial, insurance or real estate services ~$94 billion professional services ~$76 billion manufacturing ~$76 billion wholesale and retail 9/15 RE
Los Angeles ~$866 billion GDP ~$205 financial, insurance or real estate services ~$111 professional services ~$110 billion retail and wholesale ~$94 billion in information includes movie and music copyrights 75% real estate
Washington D.C. ~$471 billion GDP ~$107 billion professional services ~$106 billion government ~$97 financial, insurance or real estate services
Houston, TX ~$525 billion GDP ~$101 billion mining including oil and gas extraction $80 billion manufacturing including petroleum refining and chemical processing ~$64 billion in business services ~$62 billion financial, insurance or real estate services ~$20 billion healthcare
Dallas ~$504 billion GDP ~$93 billion financial, insurance or real estate services ~$81 billion manufacturing ~$58 billion business services
Austin ~$115 billion GDP ~$20 billion financial, insurance or real estate services ~$14 retail and wholesale ~$16 billion business services ~$14 billion government
San Antonio ~$104 billion GDP ~$14 retail and wholesale (wholesale not included but assuming around the same as retail) ~$17 billion government ~$18 billion financial, insurance or real estate services ~$10 billion professional business services ~$7 billion health care
Atlanta ~$324 billion GDP ~$30 billion wholesale trading
San Fransico ~$411 GDP ~$97 billion financial, insurance or real estate services ~$80 billion real estate services ~$43 billion manufacturing ~$37 billion government ~$33 billion information
