[OPE] Some aspects of contemporary economic nationalism

Scott Paul is executive director of the Alliance for American Manufacturing (AAM), a labor-management partnership of several leading U.S. manufacturers and the United Steelworkers. He makes a case for economic nationalism (Reuters, 19 january 2009), as follows:

Nearly one in four manufacturing jobs has vanished since 2000, and 40,000 factories have closed since 1998. Last year, manufacturing accounted for nearly a third of all lost jobs in the U.S., while factory orders plummeted to record lows. The health of manufacturing is important even for those who do not hold factory jobs. That is because manufacturing jobs pay better wages than other forms of employment-twenty percent above the U.S. average. Manufacturing jobs also have a stronger multiplier effect-supporting as many as five other jobs-thus contributing disproportionately to the economy. Manufacturers are large local taxpayers, supporting vital public services and schools in communities across the nation. American manufactured products tend to have a much smaller pollution footprint than Chinese products, and we are already deploying new technologies to compete in the clean energy economy of tomorrow. Finally, our national security depends on a strong defense industrial base to supply our troops and protect our interests.(...) A sizable stimulus that includes a $148 billion annual new infrastructure investment can create up to 2.6 million jobs, including more than 252,000 in manufacturing. But manufacturing job gains are reduced by one-third unless all infrastructure materials are sourced domestically. Dramatically reducing America's trade deficit-which stood at a record $700 billion in 2007-will also boost manufacturing. American workers and companies often face global competition subsidized by governments, as well as violations of intellectual property, disregard of reasonable labor laws, and non-enforcement of environmental regulations. Governments such as China's artificially lower the value of their currencies to gain a trade advantage. Simply enforcing domestic and international trade laws designed to ensure a level playing field, while ending subsidies and currency misalignment will boost our exports, reduce our trade deficit, and create jobs. http://blogs.reuters.com/great-debate/2009/01/19/manufacturing-a-dream-and-a-recovery/

The argument is rather self-contradictory, because on the whole, US business gets just as much state protectionism and subsidies as anywhere else (including mega-billion government bail-outs). There is never any "level playing field" in competition anyway, because competitors always aspire to utilize all the special and exclusive trade advantages they can get, including blocking competitors, if they can.

But the more interesting question is (1) how economic nationalists could actually prevent competition from foreign business in the domestic market, in particular given that the US relies heavily on foreign investment capital, and how (2) US export trade could then be expanded at the same time, without running into protectionist barriers in the country of destination. This is almost purely a matter of bargaining strength, i.e. what terms of trade you can force on others, but that bargaining strength is not simply determined by cost advantages - there are also legal, social and political dimensions.

In Scott Paul's argument, "domestic sourcing" must mean essentially "made by-US resident companies", irrespective of who owns them, or who takes the profits (it could be local investors, or foreign ones). Thus, the economic nationalism is essentially that "US-located" business must buy from and sell more to "US-located business" employing US labour, irrespective of comparative international costs, while at the same time it must sell more overseas, on a fairer (more advantageous) basis.

Question then is, how would you make that work? Essentially, by means of cartel-type arrangements, a sort of "investment-package deal" - it's based on making the provision of loan capital conditional on placing orders exclusively with suppliers within a select group specified by the controlling creditor (who effectively functions as the original investor in the venture). You block overseas competitors, by disabling their ability to tender for contracts in the local market, and by disabling local tenders from sub-contracting (outsourcing) the work to overseas suppliers.

The trouble is, that you cannot do this without restricting free markets, and to the extent that you do that, your own export trade is likely to run into similar restrictions overseas, or at any rate, arguments for the removal of trade restrictions elsewhere become less credible. The other problem is that the production of many products and services is already internationalized, they cannot be produced at all without assembling components sourced from different countries.

I have commented on some intractable problems of international trade regulation before, in 2004, in a commentary on John Kerry's ill-fated tax plans http://slash.autonomedia.org/node/2936 :

 "The current taxation legislation allows American companies to defer paying taxes on income earned by their foreign subsidiaries until they bring it back to the United States. If they keep the money overseas, they avoid paying any US tax. In Kerry's vision, companies would pay taxes on their international earnings on a PAYE basis, and, he says, the new system would apply to profits earned in future years only. Companies could then defer taxes if they located a business in a foreign country that serves that nation's markets. Associated Press suggests satirically that a US company would then benefit from a tax break, if e.g. it sited a car factory in India to sell cars in India, "but not if it relocated abroad to sell cars back to the US or Canada". Point however is, how could such a policy possibly be enforced, if the cars could easily be imported via another, associated company ? The US Government prohibited US corporates from operating in Iran, but even so, not only did they just offload to Dubai for export by intermediaries to Iran, they were operating in Iran anyhow."

The more likely variant is, therefore, not so much economic nationalism, but the spreading of a mix of national and international trading groups based on bargaining strength and access rights, who will trade only within their "own" trading circuit, and with their "own" clan, and who operate both formal and informal tarriff barriers for outsiders while providing trading advantages to insiders. In this set-up, there are "insiders and outsiders", and if you don't belong to the group, you're simply shut out of business. The whole thing is structured by "strategic resource monopolisation and resource dependency" linking clusters of business entities involved in the product chain.

However, such a resource-based regime of accumulation, in which economic rents are an important component of final prices, is not unproblematic either, to the extent that it is inflationary yet lacks any strong expansionary dynamic. Also, effectively it condemns a part of human race permanently to the scrapheap, and the question then is, whether the rest of humanity can permanently avoid the social and spiritual consequences of that fact.

Jurriaan

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Received on Sat Jan 24 17:16:20 2009