4-14-09, 9:07 am

Recent controversies over the 'Buy American' slogans advanced by the Steelworkers Union (and the Steel companies) in fighting for all purchases by the stimulus be to US producers – have also given rebirth to long-standing debates about globalization and 'free trade.' Currently trade is dive-bombing, because demand is dive-bombing as unemployment is streaking upward. Protectionist pressures from US corporations – and their employees – are and will thus be strong. the US and other countries are already breaking promises they made to each other as recently as last November. (Obama effectively canceled NAFTA provisions permitting Mexican trucking to compete with US trucking on US roads. Mexico announced retaliatory measures in textiles two days later.) Lets review some basic facts about the extent of US involvement in globalization, and how much flexibility it really has in protecting strategic industries. What in fact are the 'strategic' industries, of course, is the jackpot question. But our answer to this question, as to many others, must satisfy both national and international requirements. The striking speed at which the crisis is spreading globally demonstrates that recovery will also have to be global in order to be succeed at all, never mind be sustained. 'Strategic' must include not only national advance, but national advance founded on a global advance in wealth, culture, health, food, worker rights, democracy, and reduced inequality between nations and peoples. Strategic economic policy must include a new and different vision of the role the US economy plays in the world economy. Imperial prerogatives must yield to constructive leadership in expanding international governance founded the expansion of global democracy, peace and progress – the United States, as true for every nation, must invest in its native strengths and capacities for innovation, and build upon the foundations of its best democratic traditions and 'know-how', but with due respect and regard for its impact on the vital interests of millions around the globle. Since World War II international trade has steadily increased as a proportion of GDP. Exports plus Imports are now equal to about 22 percent of GDP (pre-crash), up from about seven percent at the end of WWII: Meaning it is growing faster than the economy as a whole. In the past 30 years the portion of trade in imports has risen faster than exports. The difference has been loaned back to us by our export driven partners like China to help finance the high-tech boom, and the financialization frenzy that followed it. The result of this trade and its interactions has been unprecedented economic integration with many countries. The US is the most globalized nation in the world.

How important is merchandise trade to the US Economy? Historical data from the Census and BEA show that merchandise trade was fairly stable at about 7 percent from the Civil War to the outbreak of World War I. Exports surged during the war, but declined sharply from 1919 to 1939 and on through World War II. Between the wars many countries pursued inward looking economic policies:

*protectionist trade policies *restrictions on immigration (world labor migration) *restrictions on international capital flows.

These policies substantially reduced world economic integration; but also, in the view of many, greatly aggravated the Depression, as well as the horror and scale of World War II. The Marshall Plan and other post-war US imperial-oriented, cold-war, reconstruction and commercial projects mandated a relaxation of these restrictions for nations or regimes friendly to US policy. For about a quarter century after World War II, exports and imports, although growing, remained a smaller share of GDP than they had been in the era prior to World War I. Both began to rise sharply in the 1970s. Currently some economists look at 19th Century models to explain this latest expansion. But many more are becoming convinced that the degree of international economic, financial, infrastructure, supply-chain, communications integration is now qualitatively advanced beyond any historical precedent. Will the trend toward even higher trade share of the economy continue? There certainly is no law in economics that mandates an inexorable increase in the rate of trade to GDP over time. In fact, many economists have advocated a 'law of diminishing international trade.' They believed that the spread of industrial technology would gradually reduce differences in efficiency between nations, and consequent incentives to trade. This was proved false. Instead, over time, improved transport costs and efficiencies spurred a division of labor across borders and oceans, which has become more refined, increasing trade between between nations with comparable technology. For example, there has been a steady increasing number of countries that can produce cars. Rather than reducing trade in cars, this development has stimulated a large amount of trade in automobile products, especially parts and components. Another, more plausible, version of the idea of diminishing returns to international trade is that the trade share would fall as countries grew richer because the composition of demand would shift away from traded goods (such as food, clothing, and manufactures) toward non-traded goods (such as housing, health care, education, and other services). To some extent, this has taken place in the United States: the share of personal consumption expenditures devoted to services has steadily risen at the expense of expenditures on durable and non-durable goods. This shift in demand has pushed the economy away from the production of merchandise goods and toward the production of services. The more rapid productivity growth in the goods-producing sectors, which has reduced the prices of those goods relative to those of services, has also contributed to this result. As a result, the traded-goods sectors of the economy – agriculture, mining and manufacturing – declined from 33.5 percent of current-dollar GDP in 1960 to 16.4 percent in 2002. The service sectors of the economy, comprising transportation and public utilities; wholesale and retail trade, finance, insurance, real estate, and government have grown more rapidly than the traded-goods sectors. Although in the past many of thee service activities could not be traded internationally, an increasing number of services are now tradeable. Yet they still consitute the least 'movable' parts of the economy, and the most reliable target for domestic job stimulus without resort to explicitly protectionist legislation and regulation. The gradual rise in the share of merchandise trade relative to GDP therefore masks the even more increased importance of trade within the traded-goods sectors. Merchandise exports as a share of Merchandise production soared from 15 percent in 1970 to 40 percent in 2000. Whereas merchandise exports overall share of GDP more modestly. In sum, for all those sectors that engage in trade, trade has become unceasingly more important – with manufacturing leading the way. Despite growing integration, economies around the world still have many 'home bias' features. But once the 15 percent-20 percent integration is achieved (a threshold passed) it appears that the 'between the wars' kind of breakdown that dominated the 1930's is greatly restrained. Separating, for example with China, would now be like removing what has become a powerful symbiotic connection. The necessity of both a more socialist, and more internationalist approach to the economic crisis becomes clearer daily. The AIG debacle has brought into public light the contradictions and political dangers of the half-hearted, and non-transparent policy of the Treasury. Financial stabilization is a make or break issue for Obama's recovery plan that cannot fail to take over effective public control of systemic institutions for at least the duration of this crisis. Likewise, reorganizing 'strategic' manufacturing – auto, for example, if transportation is indeed strategic – cries out for publicly led restructuring as well. However, for the long run, it is simply inescapable that further development of manufacturing in the US will be characterized by even more intensified automation, restructuring and internationalization, and thus contraction. In this writers view, no amount of protection can reverse this, unless the US decides to step backward in time technologically. In many ways it makes sense for the developing world to overtake much manufacturing, and to do so on better, not worse, terms of trade than in the past. They need manufacturing systems and complexes – not just a plant to manufacture one component in a supply chain they cannot possibly replicate or take needed gains from spillovers of technology. They crave manufactured goods, their labor force skills fits the model. Ours, on the other hand, is an economy and labor force ready, for example, to set a goal that EVERYONE gets at least two years of college. It seems abundantly clear that domestic employment of the future will require 1) a very productive, but relatively small, manufacturing workforce and 2) is going to be service-sector led, preferably high-end services. Those are where the opportunities for growth in good-income employment are greatest. Under 15 percent of services are tradeable at all. For some on the Left, like myself, who once believed (or still believe) that concentrating left forces in 'basic industry' was the key path to advanced society – socialism – these developments are no doubt upsetting. Proletarian politics of that earlier era will no doubt play out bigtime in all the areas of the globe where manufacturing (and proletarianization) is spreading. But here in the US, objective trends in both trade and technology persuade me that it is service worker politics that will bring a more democratic, and more socialist, vision of labor and society into being, in the United States of America. A thought for all the agitators, and their hard work struggling to change society: Adapting our politics, our strategic economic thinking, and our personal skills to the new economic environment reminds me of an old union organizing parable popular with the great United Electrical Workers' international representative in New England, Don Tormey. The parable tells of a plane crash in the wilderness, where the survivors have to organize to avoid starvation and peril. The most important person from the plane, the tale goes, is the union organizer, experienced at assigning tasks in an emergency collective situation. He takes stock of the passengers and immediately begins interviewing them: First is a carpenter. 'Excellent, your job is to assemble helpers and build some shelter'; next is a toolmaker. 'Even better: check the plane wreckage and any available material for tools we can use in food, shelter, fire, or other construction. Next is the teacher. Here, however, the organizer must ask 'What do you teach?' If its a science, you may have use; if its writing, you may be of use. Next is the stock broker. 'Hmmm.....I think you need to find a new occupation,' the organizer says. And so on, until all have useful work to do. Sure enough, the survival efforts work. Eventually, the plane wreck is found and the survivors rescued. The stock broker taps the union organizer on the shoulder: 'Now you need to find another occupation!' Another favorite expression of Brother Tormey: 'Don't over-rate the gift of gab: it's the work of the world, that changes the world – every day!'