Globalization Losers and Infrastructure Winners

http://www.nytimes.com/2011/10/16/opinion/sunday/lets-admit-it-globalization-has-losers.html?emc=eta1

http://economix.blogs.nytimes.com/2011/10/21/the-infrastructure-two-fer-jobs-now-and-future-growth/?emc=eta1

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"The immature mind hops from one thing to another; the mature mind seeks to follow through." (Harry A. Overstreet)

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Steven Rattner, who was the lead auto adviser to the Secretary of the Treasury when GM and Chrysler went thru bankruptcy, writes about the fact that globalization has it's losers and we need to face up to "who they are" and "where they are." He now joins Alan S. Blinder (former vice chairman of the Federal Reserve and a professor of economics at Princeton) who has been saying for years that we face a dramatic loss of jobs in what I would call the "globalization sectors" of the U.S. economy.

Both Rattner and Blinder are free trade proponents but realize that winners in free trade (created by low-priced imported goods) are producing losers. Rattner's experience with the manufacturing sector, as the head of President Obama's Auto Task Force, produced his General Motors auto perspective: a typical GM worker costs the company $56 per hour, which includes benefits. In Mexico, a worker costs the company $7 per hour; in China, $4.50 an hour, and in India $1 per hour. So, while GM doesn't (yet) achieve United States-level productivity in China and India, its Mexican plants are today at least as efficient as those in the U.S.

So, GM has responded with what Rattner describes as inarguable logic: while reducing its U.S. hourly work force to 50,000 from 89,000 over the last 5 years, it's Mexican head count has risen.

The United Auto Workers (UAW) have responded to this situation by negotiating lower hiring rates ($14 per hour) with lower benefits. Volkswagon's new plant in Chattanooga, Tenn., adds 2,000 jobs but all with a starting pay of $14.50 per hour. As Rattner so accurately points out, $30,000 is "hardly the American dream of great middle class jobs."

Rattner again: "In these troubled times, any jobs are surely welcome. But, we need to reverse the decline in incomes, and this requires a more thoughtful approach than the pervasive, politically attractive happy talk (my "caps" here) NOSTALGICALLY CENTERED ON RESTORING LOST MANUFACTURING JOBS."

So, with the role of manufacturing in the U.S. economy down over the last 50 years from 32% to 9%, Rattner's position is that we need to acknowledge that and move on. As he says, "...retreating into protectionism would turn a win-lose into a lose-lose." Germany concentrates on a strength (sophisticated machine tools) - we should too.

Overall, America's strength (besides defense and aviation) lies in service industries with high intellectual content: education, entertainment, digital media and (uh oh) financial services. Rattner is giving us suggestions - we should act on them.

So, should Washington jump in and do more (as it did with Solyndra, the failed solar energy company that wasted $535 million)? No. Washington can't even pick winning business sectors, let alone companies. Washington needs to spend it's capital where the need is more obvious - like INFRASTRUCTURE! The Kauffman Foundation, which focuses on entrepreneurship, has identified other possible solutions, including providing visas for entrepreneurs, etc.

Laura D'Andrea Tyson, who is a business professor at the Haas School of Business (UC, Berkeley) and was chairwoman of the Council of Economic Advisers under Bill Clinton, feels very strongly about infrastructure investment. Here, she joins Mark Zandi, an economists at the center of the most powerful suggestions on what to do when the U.S. was (and we could say: "still is") in the middle of the worldwide financial crisis (Zandi continues to be a "voice" in the sense that both political parties want to know what he thinks). Zandi has spoken of the multiples of spending from infrastructure that will create other jobs.

According to Tyson, the Jobs Act, which proposes about $90 billion in infrastructure spending as part of a $450 billion package of tax cuts and spending, would create about 2 million jobs. The President's Council On Jobs and Competitiveness (of which Dr. Tyson is a member) sees infrastructure investment as a "twofer" that creates jobs in the near term and promotes competitiveness and productivity in the long term. But, more than that, our bridges and roads are old and in need of repair. It's nice to know about the "multiples," but the work needs to be done anyway! The American Society of Civil Engineers indicates a 5-year gap of more than $1.1 trillion between the amount needed for maintenance and improvements of the U.S. infrastructure and the amount of public funds available for such investment.

Using Moodys and Congressional Budget Office data, $1 billion of infrastructure spending generates about a $1.6 billion increase in GDP. On a jobs ratio basis, $1 billion of government infrastructure spending creates 4,000 to 18,000 jobs.

Obviously, there have to be monitors on infrastructure spending - too often local governments spend infrastructure money on new roads and bridges instead of older roads and bridges in need of repair.

Regardless, spending on infrastructure is needed and will create jobs. How can any politician be against that?