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  • Writer's picturePhilip Ammerman

Jobs, Industrial Policy and Votes

There is a good article on trade, manufacturing, unions and politics in The New Yorker by Dan Kaufmann: Will Trump's broken promises to working class voters cost him the election? (October 31, 2020).

It's an excellent review on the promises made by politicians ranging back to Jimmy Carter and Ronald Reagan, and extending until today, to "save" the American manufacturing sector. And what this means about politics and votes.

One of the stupidest things I hear over and over again is how “President X created Y jobs”. Unless they literally expanded the Federal workforce or passed a subsidy or regulatory plan (with Congressional approval and public resources) that directly resulted in employment, they didn’t.

Jobs are created by entrepreneurs, companies and other entities. Including non profits and state / municipal public entities which, by definition, frequently have nothing to do with the Federal Government.

Sure, they sometimes respond to incentives (like the green energy subsidies passed during the Obama administration) but it’s not surprising if these are temporary or distorting rather than sustainable. The economic cycle creates (or destroys) more jobs in any case.

Another deception I frequently encounter is about globalization and industrial policy. Crafting a real industrial policy to re-onshore manufacturing jobs in America (or anywhere else) is a process that requires decades of concerted and systematic effort as well as policies that cut across multiple government department and economic sectors. We don’t have that. We are not working towards that. We don’t understand it. Our society is not prepared for it. Our politicians cannot comprehend it and would never accept the political cost of it.

Industrial policy does require tariff policies but also requires a focus on long-term profitability and competence that is built up over economic cycles. It requires major investments in education and training, market observation, logisitcs, worker competitiveness, innovation and other factors. Most of all, it requires cross-shareholder and stakeholder consensus.

America is not about to make this kind of commitment. American shareholder capitalism is all about maximizing executive compensation and boosting stock valuations while massaging quarterly earnings numbers. It’s all about leverage and financial engineering. American politics are all about winning the next election and getting the tens of millions of dollars from special interests to do that.

A final comment: I have seen the impact of a Chinese industrial policy in action, on the shop floor, in enterprise investment plans and at the sectoral level for 23 years now. I saw what happened to the Ethiopian, Greek and Cypriot textile sectors when China entered the GATT and the WTO.

I saw what happened when Chinese exports of finished goods on the market are at a cheaper retail price than competing product ex factory prices (no wholesale or retail margin) in Kyrgystan and Kazakhstan.

I’ve seen how, in the great re-equipping of the former Soviet Union, equipment budgets went from being 70% German and 20% Italian in the late 1990s to 70% Chinese by 2015, across multiple sectors (but not all sectors).

I’ve seen how Chinese factories now dominate the market for photovoltaic panels and certain categories of ships, and the wreckage of Greek, German and American shipyards and factories this has left behind.

China is an industrial giant that understands industrial policy and is able to make and implement strategic decisions on a 10-20 year basis. Whether we think this is fair or not, it is a fact and it’s not going to change any time soon. It says more about the success of China and our failure, rather than anything else.

Rather than condemn China, we would be better off trying to understand why our own socio-political-economic systems are such abject failures. The answers are easy to find.

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