Getting the story straight
from Robert Locke
In the Collapse of the American Management Mystique, Oxford UP 1996, I wrote about the rapid decline in American staple industries, “in automobiles and in the related industries of steel, glass, and tires. The total number of workers in the automobile industry declined from 802,800 in December 1978 to 478,000 in January 1983. By 1980 Japan had become the world’s major automobile producing nation. As Japanese replaced American, American automakers world market share decline from 27.9 percent in 1970 to 19 percent in 1982. That’s a crisis. The story in steel was even worse. In 1982 eighteen major steel companies recorded a combined loss in that year of $3.2 billion. American steel was an industry in crisis. Half of the routine steelmakers jobs vanished between 1977 and 1988 (from 489,000 to 260,000.) To these horror stories could be added many others about American failure in mass-production industries – transistor radios , cameras, binoculars, sewing machines, color televisions, VCRs, CD compact discs, as well as in glass and tire manufacturing…..” p.160
I just heard Donald Trump, in his speech about economic policy, blame Hillary Clinton for creating this crisis, with nary a word of clarification raised by commentators on his speech about the fact that this collapse in Detroit and elsewhere had nothing to do with the Clintons. It occurred during Ronald Reagan’s watch.
Economists and so-called media expert need urgently to take courses on industrial history, to spare us a lot of anachronistic baloney.
Trump is advocating the resurrection of an industrial-manufacturing economy that has been long gone from the American scene. Nobody, I hope, seriously believes that American’s economic future depends on the resurrection of industries that represent the past. America’s innovativeness has depended on the Information Revolution. Does anybody seriously believe that through protectionism the US can flourish by recreating the staples industries that disappeared in the 1980s?
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Edward Fullbrook and Jamie Morgan
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Real-World Economics Review Blog 
“Does anybody seriously believe that through protectionism the US can flourish by recreating the staples industries that disappeared in the 1980s?”
The need for an active US Industrial policy is perhaps the only thing that Trump is absolutely right about. The only reason to use protectionism as a curse-word is if you buy into the Smith-Ricardo nonsense that has knocked down every world power that has adopted it.
The US was built on the highest tariffs in the Industrialized world and became a world power based on a combination of mercantilism, public responsibility for infrastructure, and capitalism, just as tiny England used mercantilism to become top dog several hundred years before.
This article correctly points to the Reagan era as a period in which much of our “gadget” manufacturing was lost, but seems to gloss over the huge deficits that started under Reagan and then accelerated under NAFTA, one of the greatest attacks on the middle class in recent American politics.
Trump’s rhetoric is oversimplified and likely insincere, but it is refreshing that at least one candidate is speaking out against the free trade neoliberal propaganda that has been taking over both parties in this country since the 1930s.
Do you understand the word anachronism. I can’t get economists to understand the point. If you study the decline of US manufacturing, you’ll have to concede that this great decline occurred mostly in the 1980s. Do you know the subject, as I do, or do you contest my point. During the Reagan years the US had no industrial policy, but the Germans did and they renovated manufacturing when faced with the same challenge Reagan failed to confront. Trump does not believe in an “active US industrial” policy if he stands in Detroit and says that the rust belt was the creation of Clinton. Can’t you get this factual point straight. NAFTA occurred after the manufacturing base had been destroyed during the Reagan years
In their successful renovation of German manufacturing, the Germans did hot resort to protectionism, so why should we. Think again and try to discover how the Germans managed it under a free trade regime.
” During the Reagan years the US had no industrial policy, but the Germans did and they renovated manufacturing when faced with the same challenge Reagan failed to confront. ”
I would definitely agree that Reagan didn’t believe in protectionism.
“In their successful renovation of German manufacturing, the Germans did hot resort to protectionism, so why should we. ”
To some degree, I think protectionism is what you call it when you don’t like it and industrial policy is what you call it when you do. In the US, we had the highest tariffs in the industrialized world through most of the 1800s, but we also had a national college system and heavy public support for railroads. Where do you draw the line between protectionism and industrial policy? Some people use protectionism to imply that companies would really be more efficient elsewhere so you are taking a step down in efficiency by giving local companies an advantage, but isn’t that just as true about activities that most would call “Industrial Policy”, or in fact about any situation in which industries tend to be moat-forming after they get started?
“NAFTA occurred after the manufacturing base had been destroyed during the Reagan years”
We still have a lot of manufacturing in the US today by some measures. We lost a lot under Reagan, but look at trade deficits.
Note that Germany’s not the only example. South Korea seems like a better model to look at for creation of industry, IMO.
Read Robert B Reich’s The Work of Nations: Preparing Ourselves for 21st Century Capitalism, first published 1991. Get the date, Reagan-Bush era, the good manufacturing jobs had already given way to the high paying salaries of a financialized economy. Wake up your country needs you!
One question, Robert. What if some of us don’t want the kind of world Robert Reich describes? Call us Luddites, culturalists, or just plain fed up. I’d like some other choices. Got any for me?
Ken, Reich in his 1991 book, is writing about the collapse of the idealized postwar partnership between labor, management, and government that has come about beginning in the 1970s in a globalized world. He talks about the disappearance of the old pyramidal corporate structure, replaced by spider-web organizations peopled by symbolic analysts in a financialized and globalized (through Information technology) environment in which routine production workers, and in-person services workers are the great losers. Reich, like so many others dwell on this rape of the American middle classes through the instrumentalities the symbolic analysts create, like private equity firms and hedge funds that engage in such lucrative practices as hostile buyouts and takeovers, and the elimination of legacy costs, i.e., workers pensions and benefits by manipulating the bankruptcy laws. Reich saw this destruction of the middle class America as an unavoidable feature of the global marketplace.
But the French businessman Michel Albert in Capitalism against Capitalism, published in the same year as Reich’s book, considered these results to be a special characteristic of American ‘casino capitalism,’ which he contrasts with the ‘Rhine model’ of capitalism. Reich’s problem, which is also the problem of most Americans, is that they accept the mystique of managerialism, with its admiration of CEOs and wealthy businessmen (and condemnation of unions and government), as a convergence model. Reich if he doesn’t admire it also accepts managerialism as a fact. I don’t. I find participative management much more EFFICIENT and socially just, they go together. But most Americans, including Reich, don’t know what I am talking about. So they are condemned to Luddite alternatives to make America great again, like opposing NAFTA. A North American trade association, bringing in Canada, Mexico, and American, if properly done, should be beneficial for the entire region. Economic nationalism is not a viable alternative. Managerialism is the enemy. The Germans I speak with don’t think much about it, or the educational system in America that spews out MBAs.
Thanks, Robert. I knew if I gave you the opening you would fill in the record.
“considered these results to be a special characteristic of American ‘casino capitalism,’ which he contrasts with the ‘Rhine model’ of capitalism”
I would generally agree with what you have written here, but I have a slightly different interpretation, maybe. The American ‘casino capitalism’ seems to me to be largely created by increasing inequality and decreasing regulation. I cannot envision a scenario in which money in the hands of the rich becomes as common as it is in today’s America and money in the hands of the bottom 90% remains as scarce as it is today and we *don’t* go the casino capitalism direction. We took this turn even harder in the Roaring 20’s.
“I find participative management much more EFFICIENT and socially just, they go together.”
I am not sure what is being proposed here. If management valued its employees more then there are a number of benefits that would acrue, so this is something I would agree is a positive thing. But I am having trouble connecting this to actions that Government takes.
“So they are condemned to Luddite alternatives to make America great again, like opposing NAFTA. A North American trade association, bringing in Canada, Mexico, and American, if properly done, should be beneficial for the entire region.”
It seems to me that this is based on a Ricardian perspective. If you believe that Ricardo got things right you will be sympathetic to this viewpoint whereas if you believe that Ricardian logic is flawed you will also be suspicious of this claim.
“If management valued its employees more then there are a number of benefits that would acrue, so this is something I would agree is a positive thing. But I am having trouble connecting this to actions that Government takes.”
We are not talking about action government takes or about management valuing its employees, but about an arrangement in civil society where the employees would be an integral part of a firm’s management and government does not have to run things to get equity. Make a distinction between how civil society is organized, where firms exist, and government and it might be clearer to you.
As a Brit, this is not my argument, but Robert, though surely helping with “getting the story straight”, doesn’t seem fair to Jeff’s position. NAFTA surely enabled the “high-paying salaries of a financialised economy” to be invested elsewhere?
Where I think Jeff too is missing the point is when he focuses on the goal of America being a world power. Its proper goal should be ensuring the well-being of all its citizens given the vast resources, knowledge and skills at its disposal, contributing to the well-being of poorer nations by sharing what it can of what they need. Instead, you/we have dishonestly privatised and sold off “the family silver”, indulging in privatised protectionism under a nuclear umbrella by prolonging patents and copyrights on anything saleable.
NAFTA surely enabled the “high-paying salaries of a financialised economy” to be invested elsewhere?
There is so much more to it than trade deals or protectionism. It has to do with the constitution of the firm and how it is integrated into economic process, through the educational and training system, law, and community values.
Yes, I see. The devil’s in the details? It would help if you briefed us on how “It has to do with the constitution of the firm and how it is integrated into economic process, through the educational and training system, law, and community values.”
As a social catholic I think you know about the different conceptions of the firm to which I refer. The Catholic Church supports the view that people who work in firms are part of that firm and should have a voice in its governance. Ray Marshall, President Carter’s Secretary of Labor, said that workers were “unheard” voices in firms or just hired hands. Under a proprietary conception of the firm (as opposed to a stakeholder conception), which with agency theory has morphed into director primacy in the firm, employees have nothing to say about the distribution of emoluments or outsourcing, etc. in a firm, etc. Under casino capitalism, the financial agents develop strategies that reward the dealmakers in private equity firms and hedge funds, without employees voices being allowed to protect the firm’s other stakeholders in the manipulation. Most of the discussion in economics operates with the proprietary-director-primary idea of firm’ governance. Under a stakeholder conceptions employee representatives would have a major voice in how profits are distributed, or outsourcing is done, etc.
Dave, Jeff, let me give you an example of the different cultures that evolve in different conceptions of the firm. By the 1990s German co-determination had existed in German firms for over forty years. In an interview with Alfred Kieser, Professor of Human Resource Management at a leading German business faculty (Mannheim University) that took place on 19 July 1994, he told me a story to illustrate the difference between US marginalized workers and their unions and governance cultures in German co-determination based firms. Kieser related that in a restaurant in Rome he was disturbed while dining by a raucous party in a nearby room, tough fellows of the drunken girly-bottom pinching variety. Inquiring about them, he was informed that it was a delegation from the American Federation of Labor. Kieser when telling the story sought less to disparage the Americans than to emphasize how in a room of German managers and employee-elected works councilors, which would include union representatives, it would be impossible after years of co-determination, to tell one group from the other; they wear the same clothes, carry the same briefcases, speak the same language, and have often the same education. (reported in my Collapse of the American Management Mystique, p. 103).
“Where I think Jeff too is missing the point is when he focuses on the goal of America being a world power. ”
I was using it as a marker. Great Britain decided around the 1850s to dismantle their protectionist tariffs on “corn” and take other Smith-Ricardo blessed actions and slid from that point from being a world power to just another first world country. By 1929, the average factory worker in England earned only 2/3rds of what his peers in the US did, although they made most of that back in the short term by going off the gold standard in 1931 two years before we did. It would be a mistake in my opinion to just assume that’s the natural, unavoidable trajectory that the big economic powers have to take.
I would agree, though, with the implication that it is better to be able to build things than to be able to crush things for building a healthy community.