291 Norway's offshore Oil drilling is safer. Free Trade Doesn't Work - by Ian Fletcher

Norway's offshore Oil drilling is safer. Free Trade Doesn't Work - by Ian Fletcher

(1) Bigness is the prejudice of American life - "our cultural albatross"
(2) Norway's offshore Oil drilling is safer than Gulf of Mexico - and state-owned
(3) Globalization spoils go to "State capitalism" of China, Singapore
(4) Support the Labor MP speaking out against asset sales
(5) Free Trade Doesn't Work - by Ian Fletcher

(1) Bigness is the prejudice of American life - "our cultural albatross"

From: Max <Max@mailstar.net> Date: 26.04.2010 09:29 PM

Just a little something to read and discuss with pops and other ostriches from Christopher Ketcham's feature called The Curse of Bigness

http://www.amconmag.com/headline/1456/index.html

THE NEXT TIME I HEAR a politico or banker or Detroit executive talk about institutions "too big to fail," I'll direct them to the 34 percent of Americans who are obese. Last I heard, these big Americans, themselves a kind of cultural institution, were failing en masse, racked by diabetes, asthma, heart trouble, and bound for early death. The human form can only grow so big. Or I could point them to Pig #6707. Conceived in the laboratories of the U.S. Department of Agriculture during the 1990s, Pig #6707's embryo was genetically altered with a human growth gene to develop a super-pig, bigger and faster-growing and more productive of meat. But the genetic alterations produced a monster, impotent and nearly blind, its legs arthritic, its body crippled, the creature able to stand up and be photographed only with the support of a plywood board. When asked by a reporter why he created the sick pig, the lead researcher said his intent was to make livestock more efficient. ...

The United States, it would seem, is suffering its own kind of island gigantism. Bigness is the prejudice of American life, our cultural albatross, the axiom being that when something is big it is automatically better. Why we've been saddled with love of bigness as a people perhaps comes down to the matter of geography, the vastness and richness that the landscape offered for the taking from the moment of European settlement. Size was our birthright, our conditioning, the justification for our exceptionalism, bigness our manifest destiny, and for a long time, whole centuries, it worked. The free land and timber and animals to be hunted down and coal and oil and ore to be dug out of the ground made us very wealthy very fast, taught us that growthmania was the norm, the shape of progress, the American way.

Thus, we prefer our Big Macs and our Whoppers, our food portions supersized, our big cars and sprawling cities, our enormous football players (growing bigger every year, the average offensive lineman now topping three hundred pounds), our big breasts and big penises and big houses (up from an average of 1,200 square feet in 1950 to 2,216 square feet today), our big armies with big reach, and, though we complain about it incessantly, big government that spends big money running up big debt (more now than at any other period in our history). That we allow corporations to grow to outrageous size is just another symptom of the disease. Bigness worship permeates every layer of the culture; it is racked into our brains with every turn of the advertising screw; it is a totalizing force.

WHEN LOUIS BRANDEIS WROTE The Curse of Bigness in 1934, he had been a lawyer for many years and, famously, a Supreme Court justice, and much of his work in the courts was busting up bigness. He was particularly concerned about the corporate monopolies that afflicted American life at the turn of the twentieth century. The Curse of Bigness was not a big book, because the arguments were pretty obvious. The great robber baron trusts - in oil, rubber, steel, tobacco, sugar, and railroads (and let's not forget the Writing Paper Trust, the Woolen Trust, the Upper Leather Trust, the Paper Bag Trust) - had rigged bids, defrauded patentees, crushed labor movements, and could sway prices in any direction regardless of supply or demand. The ur-trust that by 1904 controlled 91 percent of U.S. oil production, Standard Oil Company of New Jersey, was found by the Justice Department to have secured its position via "discriminatory practices in favor of the combination by railroad companies; restraint and monopolization by control of pipe lines ... ; contracts with competitors in restraint of trade; . . . espionage of the business of competitors, the operation of bogus independent companies"-the stratagems as expectable as they were ugly.

The threat that behemoths like Standard Oil posed to the republic, wrote Brandeis, was their concentration of economic power and decision making to the extent that they were effectively a state within the state, operating under their own laws. Many of the trusts were shattered, in a long struggle that Brandeis pioneered. It was his advocacy that helped push into effective action the antitrust mechanisms in government (the Sherman Antitrust Act of 1890, the Clayton Antitrust Act of 1914, the Federal Trade Commission), which led to the breakup of Standard Oil and many of its sister monopolies by 1911. "American development can come on the lines on which we seek it, and the ideals which we have can be attained, only if side by side with political democracy comes industrial democracy," Brandeis wrote. "It is the relatively small man who pre-eminently needs the aid and solicitous care of industry and government. We have, gentlemen, to bear all the time that democratic view in mind." ...

It's an old story, and it bears repeating: Government subsidies favor large-scale standardized activity (in farming, manufacturing, retail - the list is long) at the expense of the local, the small, the diverse, the upstart. By 2005, four firms controlled 60 percent of the nation's grain business. The four largest meatpackers controlled 70 percent of beef supply. In some states, the four largest grocery chains controlled as much as 88 percent of all retail sales. Today, a handful of merged energy companies, the Big Five, dominate the petroleum business, with ExxonMobil, Chevron-Texaco, Conoco-Phillips, BP, and Royal Dutch?/?Shell proving, in the words of Lord Browne, former chief executive of British Petroleum, that "many of the components of the old Standard Oil [trust have] been brought together." The pattern of oligopoly holds in banking (Citigroup, Chase, and Bank of America now issuing one out of every two mortgages, two out of every three credit cards), accounting, tobacco, automobiles (the triopoly of GM, Ford, and Chrysler), defense, steel, telecommunications (Verizon, AT&T, and Sprint-Nextel), pharmaceuticals, airlines (Delta, American, United), in every major stage of the food business (even including grain elevator storage), and in the generation, transmission, and local distribution of electricity.

What we're told is that all this consolidation, this predilection for bigness, always and every time-per the usual knee-jerk size-valuation-brings "synergies," "economies of scale," efficiency, innovation. But the opposite is too often the case. To take perhaps the obvious example: The Big Three automakers, which for the last half-century have trumpeted "efficiency" and "innovation" as the bywords to justify their great size, in fact failed over the years to produce automobiles at prices and quality comparable to smaller Japanese automakers like Honda and Nissan, the U.S. oligopoly by the 1980s requiring nearly twice as many engineering hours per new car project, and today taking up to two weeks to change plants for new model assembly while little Honda does it in one night. And all this for products that are more expensive and less advanced than those of the competitors. ...

But why confine ourselves to automakers? Look at U.S. Steel, the "big sprawling inert giant," in the words of the company's own assessment, which survives only by government subsidy and protectionist measures from friends in Congress. The smaller steel companies, the so-called mini-mills operating throughout the U.S., produce at lower cost and with fewer man-hours and better pay for workers. Or look at IBM, where a senior vice-president once described the managerial hierarchy as "a giant pool of peanut butter we have to swim through." The company was out-invented at every turn of the 1980s, in the dawn of personal computing, by upstart Microsoft, which preyed on the inventions of Apple. (Microsoft today is an oligopolist like no other, with the Windows operating system installed on 95 percent of personal computers worldwide.)

Or consider how giant pharmaceutical firms license scores of products from tiny innovative biotech labs every year, perfect and mass-market the inventions of the little companies, but invent few, if any, new drugs inside their own labs. It has always been thus: the big private research laboratories of the modern age are marked by their creative barrenness, a pattern identified by no less a luminary than the former vice-president of the General Electric Company back in 1953: "Not a single distinctively new electric home appliance has ever been created by one of the giant concerns - not the first washing machine, electric range, dryer ... razor, lawn mower, freezer, air conditioner, vacuum cleaner, dishwasher, or grill. The record of the giants is one of moving in, buying out, and absorbing after the fact."

Kodachrome film? Not invented by Eastman Kodak, but by two musicians in a bathroom. The earliest turbojet engines? Blew in from none of the major aircraft firms. The Google search platform now fast becoming-in one of those tasteless ironies we have learned to expect-an internet monopoly? Conceived by two geeks in a dorm room. You don't paint the Sistine ceiling by committee, though perhaps one day a corporation will try. Creativity, in any case-the radical's creativity, which is the only kind-is not what the corporation looks for. Rather, it pursues what William Whyte called "the fight against genius." It looks for Whyte's "Organization Man," who seeks protection, safety, succor in bigness, who can be relied on to conform and submit. What it lacks in creativity, of course, the big corporation makes up for in coercion.

THE STANDARD OIL PLAYBOOK, it turns out, is very much alive, because with corporate obesity always comes the institutionalization of unfairness. Economists Walter Adams and James Brock have done more than any contemporary scholars to chronicle the effects on the ground. They find, for example, that the oligopolists in the grain and meat industries drive down prices for family farmers and ranchers, starving the small men out of business. ...

(2) Norway's offshore Oil drilling is safer than Gulf of Mexico - and state-owned

From: WVNS <ummyakoub@yahoo.com> Date: 06.05.2010 10:49 AM

Why Norway's offshore drilling is safer

Statoil operates the most environmentally friendly offshore oil rigs in the world -- because it's state-owned

By Joe Conason

MONDAY, MAY 3, 2010

http://www.salon.com/news/opinion/joe_conason/2010/05/03/norway/index.html

A gas platform in the North Sea run by the Norwegian oil company Statoil.

If anyone still believes we must drill, baby, drill offshore -- aside from Bill Kristol, that is, who wants to sink wells even closer to precious coastal wetlands -- then perhaps it is time to consider again the potential benefits of nationalization. After all, there is one country that has established an unrivaled record for environmental safety while exploiting its offshore petroleum reserves. That would be Norway, which created the company now known as Statoil Hydro as a fully state-owned entity and still controls nearly two-thirds of the company's "privatized" shares.

The Wall Street Journal reported last week that Statoil rigs in the North Sea are required by law to maintain special "acoustic switches" that shut down operations completely (and remotely) in case of a blowout or explosion. The US Mines and Minerals Service, under the industry-friendly Bush administration, decided that rigs operating in American waters need not install those switches because they are "very costly." At $500,000 per switch, they now look like an enormous bargain, of course.

What makes Norway so different from the United States -- and much more likely to install the most protective energy technology -- is that the Norwegian state can impose public values on oil producers without fighting off lobbyists and crooked politicians, because it owns and controls the resources. Rather than Halliburton-style corporate management controlling the government and blocking environmental improvement, Norway's system works the other way around. It isn't perfect, as any Nordic environmentalist will ardently explain, but the results are considerably better than ours.

Just ask Freedomworks, the right-wing corporate front group chaired by former Texas Republican Rep. Dick Armey, which has underwritten the Tea Party movement. In a post advocating more offshore drilling, Freedomworks hailed the Norwegian record effusively:

Norway's oil and gas offshore operations have safely and effectively co-existed with fishing operations in the fertile North Sea since 1971. In fact, Norway is now the world's sixth largest oil producer and the tenth largest fish producer.

Freedomworks hates socialism, so its promo copy doesn't mention the state ownership. But ideological concerns aside, the Norwegian oil business has earned a strong international reputation for industrial efficiency and environmentally benign exploration and production technology. Unlike the U.S. oil giants, which feign green concern while opposing real climate reform, Statoil has worked actively to reduce its CO2 emissions since 1991, with considerable success. Again, this is a result of harmony between national policy, aiming to make Norway carbon neutral by 2030, and the state oil sector. Rather than debate the need for stronger environmental regulation with powerful private interests for the past quarter-century, the Norwegians were able to harness the profits of their oil resources to improve the environment (and provide a generous social security and universal healthcare system for their people).

But we know that private ownership always works better than government. Don't we?

(3) Globalization spoils go to "State capitalism" of China, Singapore

The brave new world of state capitalism

Financial Times

October 17, 2007

by Martin Wolf

http://xinkaishi.typepad.com/a_new_start/2007/10/ft-the-brave-ne.html
http://blogs.ft.com/economistsforum/2007/10/the-brave-new-whtml/

Globalisation was supposed to mean the worldwide triumph of the market economy. Yet some of the most influential players are turning out to be states, not private actors. States play a dominant role in ownership and production of raw materials, notably oil and gas. Now states are also emerging as owners of wealth. This is creating widespread concern. Does that narrow focus make sense? The broad answer is No.

Fevered attention is currently focused on so-called "sovereign wealth funds". As Standard Chartered shows in an intriguing analysis, carried out with input from Oxford Analytica, these are not a new phenomenon: the oldest dates back to 1953. But today there are more funds, with far more money at their disposal than before. In all, they control some $2,200bn, with $2,100bn in the top 20 funds. The seven biggest belong (in order of estimated size) to Abu Dhabi ($625bn), Norway ($322bn), Singapore - GIC ($215bn), Kuwait ($213bn), China ($200bn), Russia ($128bn) and Singapore - Temasek ($108bn).

By definition, these funds exist because a country has a surplus of savings over investment that ends up in the hands of the government. In practice, this has happened for two reasons: ownership of commodity wealth (particularly oil and natural gas), and what amounts to forced savings from an export-oriented manufacturing economy, as in the cases of China and Singapore.

Where a country's natural resource wealth is large relative to the size of its population, the fund should be seen as a different way to hold that wealth, for the long term. In the case of Russia, however, the aim is stabilisation, which implies a shorter-term horizon. China's fund is a consequence of its massive reserve accumulations, which exceed the sums it can conceivably need for insurance. This has allowed the transfer of $200bn (maybe much more in future) to a new fund – the China Investment Corporation – with the goal of achieving a higher return than the miserably low one on the country's official reserves.

How large are these funds? They account for approximately 1.3 per cent of the world's stock of financial assets (stocks, bonds and bank deposits). But the total of $2,200bn is, notes the Standard Chartered report, bigger than the sums invested in hedge funds (at $1,000bn-$1,500bn) and private equity funds (at $700bn-$1,100bn). Nevertheless, it is dwarfed by the $53,000bn controlled by mature institutional investors (see chart).

{Graph} http://media.ft.com/cms/b14cfd8a-7c0b-11dc-be7e-0000779fd2ac.gif {end}

The sovereign funds remain far smaller than official foreign currency reserves (approximately $5,600bn). But the expectation is that these funds will grow rapidly, possibly to exceed official currency reserves in a number of years. If recent growth were to continue, the total value would reach $13,000bn over the next decade. This might then be 5 per cent of total global financial wealth.

How is the money used? Here the report distinguishes funds by their transparency and by the active, or strategic, nature of their approach to investment (see chart). Norway's fund is conventionally invested (with widely distributed ownership) and transparent. Singapore's funds are defined as transparent, but look for large ownership positions. Qatar's fund is defined as non-transparent and strategic, as is China's. But Lou Jiwei, chairman of the China Investment Corporation, insists that the new fund will operate on commercial lines.

{Graph} http://media.ft.com/cms/af8b5dfc-7c0b-11dc-be7e-0000779fd2ac.gif {end}

Is there any reason, then, to be concerned about the emergence and likely growth of such funds? As a general proposition, the answer is No. If a government operates a fund transparently and on normal commercial lines, with a wide range of investments and no dominant positions, as does Norway, one can only welcome its emergence as an investor. Questions should be raised only if a fund sought a controlling interest in a strategic company. Then two issues would arise, neither of them specific to sovereign funds: the first is whether the fund is a "fit and proper person" to control a company; the second is whether ownership might threaten a public interest.

Many sovereign wealth funds should raise no concerns whatsoever. The worrying ones are only those that do seek dominant positions or outright ownership of strategically important businesses. If the fund belonged to a government deemed potentially hostile, the concern must be bigger. It would be reasonable to keep control of companies operating in defence or high technology out of the ownership of funds belonging to any foreign government, let alone a potentially hostile one. But interesting questions arise elsewhere: what would people feel about Chinese government ownership of a big media operator?

In other respects, however, the concern with sovereign funds is too narrow. The big truth is that contemporary globalisation has brought players into the game that operate by different rules from those espoused by today's high-income countries: vast state-owned companies, such as Gazprom; billionaires who have gained fortunes by a mixture of force and fraud; and funds owned by governments. Of these, the last may well turn out to pose the smallest problems.

My broad recommendation, then, is to consider the emergence of these funds as part of the integration of countries that accept a bigger role of the state in markets than western countries do today. So be it. It is better for such countries to prosper inside the market system than glower outside it. It is absurd to take a country's exports of oil and refuse to allow it to buy assets, in return.

Yet not everything should be for sale. It is possible – indeed, necessary – to define a negative list of companies that are "off limits". It is also reasonable to monitor the suitability of owners of large public companies. It would be wrong to exclude state-owned companies from bidding for such public companies. But it is quite reasonable to investigate how these have operated elsewhere. It is not unreasonable, after all, to believe that a state-owned company might not work on normal commercial lines. But it may do so, in which case no problem need arise.

Meanwhile, the owners of the sovereign wealth funds need to understand their own best interests. They should manage their money professionally and transparently. This is also the way to minimise friction with host countries. If they refuse to abide by these principles, they must expect trouble. Yet trouble should not go out of its way to look for them: far, far worse things can happen than for China to come to the west bearing the chequebook it has earned by its people's remarkable efforts.

(4) Support the Labor MP speaking out against asset sales

From: Queensland Not For Sale <info@qldnotforsale.org.au> Date: 06.05.2010 12:07 PM

http://www.qldnotforsale.org.au/email_mp/

Paul Hoolihan, the Labor Member for Keppel in Central Queensland, says it's time to think twice about the sell-off of your public assets.
The senior MP admitted this week that improved economic conditions required a reconsideration of the Bligh Government's asset sell-off plan.
He said a recent economic report showed that it was time to look at an 'alternate decision'.
Mr Hoolihan joins leading economists, coal mining companies, primary producers, federal government ministers, the RACQ and more than 80% of Queenslanders who do not support the government's privatisation plans.
Now is the time to increase the pressure on other Bligh government MPs.

Send a message of support to Member for Keppel Paul Hoolihan, and ask your friends to send one too.
<http://www.qldnotforsale.org.au/refertofriendmp.php>

We will also send a copy to the acting Premier's Office saying that new reports show the assets sale plan is ill-advised and unnecessary.

http://www.qldnotforsale.org.au

(5) Free Trade Doesn't Work - by Ian Fletcher

Free Trade Doesn't Work: What Should Replace it and Why

Ian Fletcher

Ian Fletcher is an Adjunct Fellow at the San Francisco office of the U.S. Business and Industry Council, a Washington think tank founded in 1933.

He was previously an economist in private practice, mostly serving hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco with his wife and daughter.

Ian may be contacted at ian. fletcher@usbic.net or 415.439.8377 ==

http://www.amazon.com/Free-Trade-Doesnt-Work-Replace/dp/0578048205

8 of 8 people found the following review helpful:

A Passionate, Well Thought Out and Superbly Written, Plea for Reason and Sanity on Trade, February 6, 2010

5.0 out of 5 stars

By Ron Baiman (Chicago, Illinois) -

This is an excellent book on a very important topic. The U.S. economy is hemorrhaging high quality export industry jobs at an astounding rate and a major causal factor is the mistaken and destructive "free trade" doctrine, the legitimating factor behind "free trade policy". Almost half of our manufacturing workforce has disappeared since 1987 and more than a third of large factories just since 2001. ...

The book is divided into three parts: the Problem, the Real Economics of Trade, and the Solution. In the Problem section, Fletcher describes the US situation and goes over and tears apart the standard arguments for free trade and some of the wishful "remedies" to the U.S. trade problem such as more "education" and "post industrialism".

In the second part, he provides a masterful analysis of core ideas of "comparative advantage" and why this does not justify free trade.

The final section of the book provides a wealth of information on actual trade policy and real world trade that leads into a first rate summary of recent theoretical advances in "real trade" theory (as opposed to the largely ideological and mythological "free trade" doctrine). He than proposes and argues for a politically and economically practical alternative: a "natural strategic tariff" that would in many ways level the playing field between US and foreign exporters in the most important dynamic manufacturing and service export sectors.

Fletcher proposes that any regressive tax effects of a Strategic Tariff be neutralized through rebates to low-income consumers. ...

Fletcher's vision is informed by a Schumpeterian "evolutionary" economics approach that has been championed by Norwegian economist Erik Reinert as the "Other Canon" of a more than 500 year old, but periodically lost, wisdom in political economy on the means by which nations become wealthy. This is a very important school of thought that is fiercely opposed to the reigning "Neoclassical" economic paradigm. ...

2 of 2 people found the following review helpful:

 At Long Last, January 30, 2010

By James Case (Baltimore, MD) - See all my reviews

Paul Samuelson, second only to John Maynard Keynes in stature among twentieth century economists, once conceded that there are many more arguments against free international trade than for it. Yet he never publicized the contrarian arguments. Now, at long last, the job has been done for him. Ian Fletcher's new book FREE TRADE DOESN'T WORK: WHAT SHOULD REPLACE IT AND WHY? offers a compendium of such arguments.

Fletcher devotes but a single chapter to the (currently decisive) argument in favor of free trade. It is purely theoretical, consisting of little more than David Ricardo's long over-rated "principle of comparative advantage," reduced by modern scholarship to a mathematical theorem. The gory details may be found at www.FreeTradeMath.org. The mathematics don't make the theorem true. They only make it AS TRUE as the assumptions from which it is deduced. Fletcher lists seven "hidden assumptions" that appear both necessary and sufficient to invalidate Ricardo's conclusion that free trade is, at all times and in all places, advantageous to the practicing nations.

The beauty of Ricardo's principle is that it absolves policy makers of any need to determine the facts of the matter. If free trade policy were indeed universally advantageous, no nation would have any incentive to practice anything else. Fletcher devotes the bulk of his book to the many powerful incentives that now cause -- and have long caused -- most nations to adopt quite different policies. In the process, he debunks a multitude of claims traditionally made by the advocates of free trade:

* NAFTA was sold on the claim that it would create 200,000 US jobs before the ink was dry. In fact it promptly exported many more than that, while depressing wages in the ones left behind.

* The British Empire prospered after adopting free trade in 1860. In fact the already prosperous economy withered.

* Free trade is "tried and true." In fact, trade restrictions are as old and universal as trade itself. When tried, free trade has soon been abandonned as disadvantageous. ...

Arm Yourself With This Book To Argue With The Economics Establishment, January 28, 2010

By Richard Schmale (CA)

This review is from: Free Trade Doesn't Work: What Should Replace it and Why (Paperback)

For 30 years common sense has shown that free trade doesn't work and only results in jobs and industries being shipped overseas while the American middle class becomes poorer. Economist Ian Fletcher's seminal book allows the educated person to understand the obfuscations of the economics establishment and to argue back with confidence. International trade has existed since the bronze age and Fletcher is not argueing against trade, rather he asserts that trade should be fair and be managed to the benefit of American workers and consumers. Reject the paternalism of economists and read the book! Richard Schmale ...

5 of 5 people found the following review helpful:

Best Critique of Comparative Advantage, January 27, 2010

By M. Glick
 
This book contains the best most understandable and convincing critique of the theory of comparative advantage that I've seen. I have taught microeconomics for 20 years and now I will revise my discussion of comparative advantage in light of several of the points made in this book.

An excerpt from Chapter 12: The End of the Free Trade Coalition

DOES AMERICA HAVE a serious chance of getting the trade policy it needs? The best way to hazard a guess at the issue's political future is to look at its underlying social dynamic.1 The key is to grasp the way free trade is experienced by ordinary voters:

Free trade is cheap labor embodied in goods.

Although, as we have seen, our trade problems cannot all literally be reduced to cheap foreign labor, this is still the aspect that dominates public consciousness and thus mass political opinion.

The first rift this implies is between people who obtain most of their income from work and people who obtain most of their income from returns on capital. People in the latter category obviously want all labor to be as cheap as possible. People in the former category want the labor they consume (directly or embodied in goods) to be as cheap as possible, but the labor that they produce and sell, namely their own wages, to be expensive. This implies the possibility of an electoral coalition in which one part of society treats itself to cheap foreign labor at the expense of another.

As long as the self-perceived enjoyers of cheap labor exceed the self-perceived victims in number, this coalition is politically viable. For example, there can be a coalition of everyone who is not a manufacturing worker (91 percent of the labor force today, up from 66 percent in 1950)2 against everyone who is. While manufacturing workers suffer competition from cheap foreign labor, everyone else enjoys cheap foreign manufactured goods, so a majority is happy. The indirect effects of a decline in manufacturing are either not noticed—largely because they are not understood—or else are postponed for years by America's ability to accumulate debt and sell assets.

This doesn't mean, however, that these indirect effects aren't real. As we have seen, they are inexorable. So what if we go from 10 percent of the population harmed and 90 percent benefited to 20/80? Or 30/70? Or 50/50? Or 70/30 the other way? The coalition will start to fall apart. ...

There is not much left of the American economy that is invulnerable to pressures from trade. Even large parts of the 70 percent of our economy that is in nontraded sectors are inexorably becoming tradable due to offshoring, and workers displaced from tradable sectors are driving down wages in nontradable sectors. The remaining sheltered occupations are these:

1. Jobs that must be performed in person, such as policing, cooking, bagging groceries, teaching school, being a criminal, etc.

2. Jobs, like construction, performed on physical objects too large or heavy to be shipped from abroad.

3. Jobs performed on or relative to objects fixed in place: agriculture, mining, and transportation.

4. Jobs where America enjoys significant technological superiority tied to oligopoly industries or specialized local labor pools, a shrinking category.

5. Jobs, like law or advertising, which depend on uniquely American knowledge. But even this is breaking down as law firms, for example, start to offshore work.

6. Jobs dependent upon sovereign power, such as the military.

But given our use of "civilian security contractors" in war, this can clearly be nibbled away at in surprising ways. And as noted in Chapter 8, the WTO would like to privatize even more public services, opening them up to offshoring.

The trouble is, these categories are not enough. In particular, they don't add up to enough high-wage jobs because most (not all) of these jobs are relatively low paid. So the beggar-my-neighbor coalition starts to fall apart.

What happens next?

The bad news for Republicans is that what we can call the psychological bourgeoisie starts to shrink. This term refers to everyone who identifies emotionally and politically with the ownership of capital, whether or not a majority of their income is investment income. Wall Street financial analysts whose jobs may get offshored are the clearest example, but there are people in this category all over the U.S. The key psychological bargain such people have had with the system until now is that economic forces are things that happen to other people. (One can take an amazingly dispassionate view of economic efficiency when this is the case.)

The bad news for Democrats is that, at the level of the presidency and party leadership, they sold out so completely to free trade under Bill Clinton (and never came back) that they threw away their natural position, earned over 70 years, as the party that protects Americans from the rougher edges of capitalism. They should be capitalizing on the economic mess following eight years of Republican rule right now, but they've largely squandered their ability to do so.

Both right and left are playing a double game on trade in America today.

Right-of-center Americans generally want to hear that America's trade problems are caused by unfair distortions of free markets by our trading partners. They long to preserve the idea that free markets are a universal solution. But, as we have seen, even perfectly free markets would not solve America's trade problems. And our trading partners are mostly just ruthless players of the game, as we used to be. The corporate right (other factions exist, but have no power over Republican economic policy) claims, on ultimately Ricardian grounds, that free trade is in the national interest. But when pressed by contrary evidence, its own corporate chieftains fall back on the position that their companies owe no loyalty to the U.S. Indeed, they often say they aren't even capable of having such a loyalty, so internationalized are their operations and diverse the nationalities of their shareholders and employees.

Left-of-center Americans generally want to hear that America's trade problems are caused by greedy corporations and exploitative capitalism. But the problem is not that corporations are greedy (which people have always been); it is that the rules they currently operate under make that greed unnecessarily destructive. And although sound economics certainly shows that exploitation in trade is possible, it doesn't show that exploitation must occur for free trade to do harm. The American left is also as conflicted as the right: at some point, it must choose between opposing free trade in the interests of ordinary Americans and opposing it in the interests of the world as a whole. Intellectually and emotionally, the latter is its obvious choice, but this is unlikely to play in Peoria. The ideal political position from which to oppose free trade would be a kind of nationalist liberalism, but this Trumanesque or Jacksonian position does not exist in American politics today.

It is often disputed whether protectionism is a left- or a right-wing policy.

It puzzles people in this regard because it has deep ideological and historical roots on both sides. The truth is that while protectionism contradicts the free-market right, the dominant strand in the U.S. since the collapse of the old protectionist Taft wing of the Republican party in 1952, it is perfectly in tune with old-school "paleo" conservatism, the nationalist right, and bourgeois paternalism. And while protectionism contradicts the modern, Clintonite, Blairite (as in Tony) globalist left, it is perfectly in tune with any left that cares about American workers, the global environment, democratic control over the economy, or the depredations of free trade upon poor nations abroad. If one accepts the basic contention of this book that correctly implemented protectionism is beneficial, then it is probably most accurate to think of protectionism as leftist if its benefits are captured primarily by ordinary workers, rightist if they are captured primarily by corporations, and centrist if they are divided.

The fact that wildly different partisan figures, ranging from Patrick Buchanan on the right to Ralph Nader on the left (to choose two wellknown and colorful examples), oppose free trade is a strength for protectionism, not a sign of ideological incoherence, as it means that protectionism can be credibly sold to voters from one end of the political spectrum to the other. The policy can be packaged as anything from a right-wing tubthumping America First appeal to a left-wing tie-dyed hippie sob story. Even better, it can be packaged as a moderate and reasonable "commitment to a middle class society" that will appeal to voters in the center. Believe it or not, the following quote is from the Republican platform of 1972: We deplore the practice of locating plants in foreign countries solely to take advantage of low wage rates in order to produce goods primarily for sale in the United States. We will take action to discourage such unfair and disruptive practices that result in the loss of American jobs.

How far we have fallen! If Barack Obama had said this in 2008, he'd have been accused of being an economic ignoramus, if not a closet socialist. (If John McCain had said it, he'd have been considered a candidate for the psychiatric ward.) However, what is reasonable can be redefined overnight —mainly by the media—when the underlying constellations of perceived self-interest shift among the elite. A single cover story in Time magazine or The New York Times Magazine could make protectionism a respectable conversation topic again. A single speech by a cabinet-level official, if openly supported by the President, could do it.

Support for free trade will probably fall apart over the next few years. ...

Once protectionism is conceded to be a valid political position, it will eventually win the public debate, if free trade's unpopularity continues to mount at the pace it has been mounting over the last 10 years. ...

Free trade's popularity has been declining for years. ...

Obama is not going to be able to support free trade forever. Crisis will eventually come, probably when the dollar finally melts, which will force the public to ask why this happened and thus force the question of whether America's trade policy has been wise. A sharp decline in the dollar will generate an inflationary shock—and a shock in interest rates—that will capture public attention and quite likely knock the economy back into recession. ... ==

More information at http://www.freetradedoesntwork.com . ==

How free trade has devastated Africa's farmers and poor

February 15th, 2010

Free trade isn't just bad for the U.S.  It is also bad for poor nations abroad.  See this story:

http://news.mongabay.com/2010/0215-hance_freetrade.html ==

U.S. Needs an Industrial Policy – Former Shell Oil CEO

February 14th, 2010

Industrial policy is often dismissed as the preference of unions hacks and academics who want to become technocrats.

So it is nice to see the former CEO of one of the world's largest corporations admitting that the U.S. needs some:

http://online.wsj.com/article/SB20001424052748704533204575047540254258772.html ...

Stimulus money for green jobs going overseas

February 12th, 2010

ABC news has a blockbuster report showing that eight out of ten stimulus dollars for wind power are going to non-American companies, particularly China.  Under free trade, there is no way we can expect this not to happen.

http://abcnews.go.com/WNT/video/green-stimulus-jobs-china-9791423?tab=9482930&section=1206853&playlist=1363340 ...

Don't Assume Free Trade Will Westernize or Liberalize China

February 9th, 2010

There is a recurring myth that it's safe to trade with potentially-threatening dictatorships like China, building up the industrial bases that form one ultimate basis of their military power, because free trade will inexorably Westernize (i.e. liberalize) these societies and render them harmless to us.  This idea has been critiqued before by Eamonn Fingleton in his book Jaws of the Dragon; comes now another book in this vein, by Martin Jacques, entitled When China Rules the World ...