I’d like to share a piece written by Marco Trbovich from Tricom Associates, Inc. on the Responsible Investment Forum I attended on February 22nd in Atlanta, GA in conjunction with the BlueGreen Alliance’s Good Jobs Green Jobs Southern Regional Conference. This forum was put together by Thomas Croft from Heartland Capital Strategies and author of Up From Wall Street (definitely a must read). Also special thanks to the Emerald Cities Collaborative and Emerald Cities Atlanta in coordinating the days events. Overall I found it an invaluable experience, and I am looking forward to continuing the discussion as these forums move on to Los Angeles, Philadelphia, and Detroit.
This piece originally appeared on Heartland Capital Strategies, and has since been reposted by the AFL-CIO, Huffington Post, and others with the title: Atlanta Mayor Joins Heartland Forum to Urge Investments in Sustainable Economy. Many thanks to Marco Trbovich, Vice President of Strategic Communications for Tricom Associates for writing this up. Give it a read, and give some thought about how the investments you are making for your future might be able to be put to better use.
Atlanta Mayor Kasim Reed led a presentation on his city’s initiative to retrofit a wide range of commercial, public and residential buildings in a 400-block area of downtown that proved the highlight of a gathering of investors, pension fund managers, business, labor and community leaders at Heartland Capital Strategies’ first Responsible Investment Forum.
The forum, sponsored in collaboration with the Blue Green Alliance, addressed the need for greater alternative investments to sustain the real economy, an investment arena largely abandoned by Wall Street.
In contrast, the responsible investment specialists attending the forum were characterized by Heartland Managing Director Thomas Croft as "a community interested in forging a new alternative path for responsible investment in manufacturing, community development and clean economy growth," an approach that Heartland brands as "doing well by doing good."
Mayor Reed urged forum attendees to consider investing in the Better Buildings Challenge, the city's retrofitting initiative to create a more sustainable economy, improved air and water quality and job growth.
"Capital goes where it is needed and stays where it is well cared for," he told the gathering. Aided by staff of the Better Buildings Challenge and the Emerald Cities Collaborative, the Mayor provided a comprehensive presentation on how investments in the project would be managed to minimize risk.
Many of the participants in Heartland's one-day forum committed to further conversations to discuss possible investments in the Atlanta project, which hopes to put many of city's 57,000 unemployed union tradesmen to work in the massive undertaking.
Financing a Sustainable Economy
The Atlanta forum was the first of four being sponsored by Heartland Capital Strategies in conjunction with the Blue Green Alliance's Good Jobs, Green Jobs regional conferences. Inspired by the United Nations Principles for Responsible Investment (PRI), Heartland promotes investments and projects essential for revitalizing America's productive economy and community prosperity.
Heartland's commitment to responsible investment is based on the United Nations ESG principles, which call for investors' attention to environmental concerns, social well being, including respect for labor rights, and the character of corporate governance, as well in addition to rates of return.
Throughout the day, forum presenters shared innovative ideas on how responsible pension investors and fund managers could maintain high rates of return while directing alternative investments toward domestic job creation in energy, manufacturing, housing and infrastructure, clear social benefits that derive from responsible investment.
Craig Overmyer, Managing Director of Hopewell Ventures, cited the complex challenges facing efforts to fund innovative alternative investments that stimulate job growth. He characterized sustainability as creating "an eco-system that keeps going," which requires the considerable task of identifying gaps in the market and finding solutions for that gap.
"You have to identify a problem and the constituents so that you cover all your bases before the decision on the investment arises. You have to match returns of competitors and then you must lead by finding other constituent leaders" willing to advocate for ESG principles. To overcome the fits and starts in regulatory and tax policy that hinder alternative investment, he added, "We need a national energy policy to establish continuity and consistency in policy and regulation."
Jennifer von Bismarck, President of Towpath Renewables added that the current U.S. map of states with Renewable Portfolio Standards "looks like 29 different countries," which she said made it especially difficult for investors and pension funds in particular to assess ROI and long-term viability.
Ups and Downs of Investing Responsibly
Landon Butler, who founded the $5 billion Multi-Employer Property Trust (MEPT) in 1982, offered a compelling overview of the explosive growth in construction investment trusts, financed by construction union pensions, since passage of the 1968 Fair Housing Act.
While working as President Carter's deputy chief of staff, Butler said he gained a great respect for collective bargaining's role in securing pension savings that represent a substantial source of investment capital for nourishing the nation's job growth and retirement security.
"Somehow the social component has gotten lost in the process over the years," he concluded, "at a time when there is a desperate need for jobs. We're not sensing that [pension] trustees are looking at job creation, despite the substantial record of pension fund investments in creating them." He allowed, however, that "trustees are shell shocked because of the downturn."
Scott Woolsey, Managing Director of the Labor-Management Fund Advisors, added that trustees are not even recognizing the ancillary jobs that projects governed by ESG principles create. "It's all 'returns, returns, returns.'"
Innovative Leadership Crucial
Ted Chandler, Chief Operating Officer of the AFL-CIO's Housing Investment Trust, noted that public funds have much less focus on targeted investment than in the 1990s, offering that "layers of gatekeepers" preempt focus on the ESG principles. Gatekeepers, such as investment consultants, "identify with the management perspective," he said. "The real issue is leadership by trustees of pension funds in setting the agenda for investments."
"Some consultants get it," explained Mark Austin, Managing Director of North Sky Capital, "though they're in the minority. Many consultants clearly don't understand all the specific concerns of trustees. They're focused on return without an understanding of all the other issues trustees have in their laps." Dan Givens, a pension administrator for the Miami Firefighters union, asserted that "trustee education is the whole deal, getting our people to get comfortable with their decisions, " a daunting challenge, he averred, as the tenure of trustees in Florida is only three to five years, "so there's little continuity."
Trustee Training Crucial
The call for more substantial, ongoing training to strengthen trustees' leadership role in advocating for ESG principles was voiced repeatedly throughout the forum. "One of our missions [in the International Association of Firefighters] is to educate trustees," Givens said. "You have to have a platform for them to make the case for socially responsible investments. Build it and they will come."
Bob Eason, former Vice President of the Savannah, Georgia local of the International Longshoremen, added that "it all gets back to education, and trustee education is now entirely captured by Wall Street."
Deborah Nisson, Vice President of ULLICO added that fund managers need to understand that "public-private partnerships is not a four-letter word." For the long-term nature of funds, she concluded, "we need to educate trustees on the value to their constituents and the real economy of including ESG principles in their considerations. Unions need to make the investment in staff and training."
You can keep up with Marco Trbovich's posts about labor, education, environment, politics and more on Twitter.
When one’s experience getting from point A to point B on a daily basis is being chauffeured in a town car behind tinted glass, isolated in a pod from humanity, and any possibility of friendship or congress with human beings, it may be difficult to understand the concept of public transit. Unfortunately, its seems more and more in this country those are the people making the policy decisions that affect public transit.
The fate of our public transit systems, and unfortunately our entire nation’s crumbling transportation infrastructure, still lay in the balance this week. Yesterday the Senate failed in getting the necessary 60 votes needed to invoke cloture, end debate, and move to a vote on its bipartisan Surface Transportation package. Meanwhile the House chose an interesting means of moving forward, which seems to have fallen flat on its face.
It seems that the House Republican leadership was faced with crumbling support for their awful and inherently flawed energy-infrastructure package, and decided to split the bill into three sections that they believe would have a better chance of passing independently.
As a result the House intended to consider H.R. 7 as three separate packages: one focusing on transportation, one on energy production that will include language on the proposed Keystone XL pipeline and the third dealing with federal pensions. The idea of splitting the measure is that House members would be able to “vote their consciences” on pieces of the bill without requiring them to vote on the entire thing. For instance, lawmakers could vote for the authorizing portions of the surface transportation title while voting against the changes to federal employee pensions. Then, if all the bills are passed separately, the House’s bill clerk would sew them back together and send them to the Senate as one bill.
The energy package (H.R. 3408) — which includes an expansion of oil shale exploration, new offshore leasing and an expansion of drilling in Alaska – passed the House on Thursday night by a vote of 237 in favor to 187 against, 21 Republicans voted against the bill, and 21 Democrats voted in favor of it.
However it seems that was about as far as they got, because on Wednesday the 15th, House Speaker John Boehner pulled the transportation bill from the floor, announcing that he was delaying the vote on the $260 billion transportation bill (HR 7) that was scheduled this week. The House now waits to take it up again, and it will likely not be completed until after the President’s Day week recess, and even that is looking unlikely.
As much as Boehner uses double speak about this being a part of a transparent process, this debacle demonstrates that GOP leaders lack the votes to win approval of the package. The politics they are playing with this bill (of which I’ve been critical) seem to now be biting them in the ass.
It seems there was some discussion in the Republican House Caucus this week over the use of one of the offsets in this package — a requirement that federal employees pay a greater share of their pension contributions (HR 3813) — which now seems (at least in part) to be included in the deal on the payroll tax cut extension instead. What that means for this House Surface Transportation package remains to be seen.
What is still evident is that the transportation piece of this legislation still threatens our nation’s public transportation systems through the controversial transit funding change that would move the mass transit account out of the Highway Trust Fund and open it up to the appropriations process. Urban Republicans and Democrats alike have come out against that move, saying it would jeopardize the long-term future of transit and could lead to cost-cutting, and they are correct in that assessment.
Policy ideas like the House’s controversial transit funding change demonstrate how out of touch some of the policy makers on Capitol Hill are with the realities that face the 99% of Americans on a daily basis.
When thinking about transportation in the United States, do these policy makers realize that currently in the United States nearly two-thirds of all residents in small towns and rural communities have few if any transportation options, that 41% of the population have no access to transit; and another 25% live in areas with below-average transit services?
Do they understand how that may relate to the statistics that nearly 20 percent of African-American households, 14 percent of Latino households, and 13 percent of Asian households live without a car?
Is there any consideration for the nearly one in five Americans who face a physical challenge that impacts their ability to travel for their daily needs (i.e. use of wheelchair or diminished vision, hearing, or physical movement)?
It’s obvious to me that those drafting the mass transit provisions in H.R. 7 either aren’t thinking about these sectors of the population, are ignorant of these issues, or simply do not care. How else do you explain including heavy-handed federal mandates forcing wholesale privatization of public transit systems? The elimination of dedicated funding for mass transit and replacing it with a mechanism that makes it necessary for transit advocates to fight to receive adequate funding every appropriations cycle year after year?
It seems obvious that these policy makers are either unaware, ignorant, or callously ignoring the fact that in the last year, more than 80 percent of the nation’s transit systems proposed to or already have eliminated transit routes, cut service hours, increased fares, or a combination of all of these. This is occurring even at a time when ridership on mass transit is at an all-time high and the need for affordable transportation and sustaining transportation jobs couldn’t be higher.
Instead of pushing through an ideological agenda hell-bent on shrinking government, driven by an obsession with free market solutions, that will devastate local transit agencies, jeopardize needed services and threaten jobs in mass transit, our nation’s policy makers should look at how the poor management ruining service delivery; the aging buses plaguing a city; or the inadequate investment that is causing mass disrepair of city infrastructure can be solved through investment and sensible reform.
We need to be sending this message to our nation’s policy makers. They need to consider that transportation is the second largest expense, after housing, for households in the United States, surpassing food, clothing, and healthcare costs. The affluent politicians driving the debate on public transit, may need an education about how low- and moderate-income households spend 42 percent of their total annual income on transportation, including those who live in rural areas, as compared to even middle-income households, who still spend almost 22 percent of their annual income on transportation.
Luckily, there are people in the United States working to make sure that our nation’s policy makers consider all of these factors.
Earlier this week, on February 13 and 14, I attended the New York State Transportation Equity Alliance’s (NYSTEA) two-day transportation equity conference in Albany.
After spending the majority of my time last week mired in what lead up to the above-described dealings with the surface transportation debate here in Washington, DC, it was nice to escape the beltway and head up to Albany NY, to have some great discussions with folks about why public transit matters to our nations communities, why public transportation needs to be adequately funded, and the importance of assuring that the riding public is represented on transit authority boards.
The conference was attended by key representatives of the organizations comprising the NYSTEA Coalition and the event was also open to other transportation advocates and practitioners around the state. (Click here to view a complete conference agenda.)
The Monday morning session focused on the state transit funding situation in New York, and the need for change. The panel provided the perspectives from state administration and transit authorities on their difficulties, while including the effects on the riding public.
At noon, all of us at the conference joined NYSTEA at a Transit Awareness Day rally in the “well” of the Legislative Office Building, and urged Albany to invest in transit and keep New York moving. The rally was co-sponsored by the New York Public Transit Association (NYPTA) and NYSTEA and brought transit riders and operators together. By joining voices, we delivered our message loud and clear that public transportation needs funding!
The rally served to remind New York’s policy makers that when Albany short-changes transit, New Yorkers can’t get to work. The good news is that the increased state operating assistance in Governor Cuomo’s proposed budget could mitigate upstate service cuts, but the rally served to remind the legislature that they must address long-term transit funding before it is too late. This is a sentiment we all need to be echoing on a national basis.
The rally was followed by a panel on Rider Representation, which was moderated by Cecil Corbin-Mark from WE ACT for Environmental Justice, and included Vincent Crehan, ATU Local 1342 and NFTA Board Member; Esperanza Martinez, Bus Riders Union; and Leah Golby, Capital Region Transit Advocates. The panel focused on the need for the voting representation of transit riders on transit authority boards, difficulties posed by board dynamics, and challenges faced in campaigns. It seems only logical that on a local, state, and federal basis the decisions that affect our nation’s transit systems should have input from the people who ride and depend on public transit. The Surface Transportation bills in front of the U.S. House and Senate would benefit incalculably from such input.
Later on Monday afternoon, I participated in a panel discussion organized by the local NY State Apollo Alliance. The topic of the panel was “Jobs through Transit” and also featured President John Samuelsen of Transport Workers Union Local 100, John Loughran a transportation planner from FXFOWLE, and Ed Murphy of the Workforce Development Institute. Our discussion focused on the variety of ways that expanded transit service can put New Yorkers back to work. From the manufacturers who build buses, to the drivers who operate them, to the builders of transit-oriented communities, investment in public transit means good, green jobs for New Yorkers.
Throughout the day there were great discussions on equity issues in transportation and issues facing transit riders, and I’d like to thank Cecil Corbin Mark and Jake Carlson from WE-ACT, Peter Fleischer from Empire State Future, Elizabeth Yeampierre of UPROSE, and Jeff Jones from the New York State Apollo Alliance for bringing me up to Albany, NY so I could partake in the day’s activities.
Tuesday morning kicked of a day of legislative advocacy, with a panel on the need for transit justice organizing in New York State. The panel drew on the experiences of groups doing the work upstate (VOICE Buffalo), downstate (UPROSE), and across the country (Bus Riders Union). The panelists then lead breakout sessions that went into some training and strategies around organizing – including recruitment and base-building, communications, and power-mapping and coalition building.
It was an experience I wish all the elected officials looking to slash the funding of public transit could have had. Maybe, if some of them got out of their chauffeured vehicles, and looked out from behind their tinted windows, and actually mingled with some of us on the bus or the subway, they’d do a better job governing. But alas, the 1% don’t seem to ride public transit…
Let me start by providing some perspective.
Based on the current jobs numbers, 12.8 million Americans remain unemployed in the United States. This means more people are unemployed than the combined populations of New York City, Los Angeles, and Boston. Currently, 1.4 million construction workers are amongst those people, making up roughly 10% of the currently unemployed Americans.
Meanwhile the eighth funding extension of the last surface transportation authorization runs out on March 31, 2012. It is not the time for Congress to remain mired in the partisanship we currently see. Our elected officials need to wake up and enact legislation to put people back to work. Now is the time for Congress to pass a bipartisan, multi-billion-dollar re-authorization of transit and highway programs.
Such a bill would allow states to hire these 1.4 million construction professionals to work building our nations roads, bridges, and transit systems. This same legislation could also include a national strategy to leverage our federal transportation investments to build a modern, efficient transportation system to create quality, high-paying manufacturing jobs.
Congress has the ability to pass a surface transportation bill that lays a foundation for a long-term economic recovery strategy that creates millions of American jobs; provides increased transportation options and alternatives to fossil fuels; and recognizes our potential to invent and manufacture cleaner vehicles and transit systems here at home, instead of sending our dollars overseas.
Yet this is not what is happening in Congress.
Right now the Republican controlled House of Representatives has put forth a bill they call the American Energy and Infrastructure Jobs Act of 2012 (H.R. 7), which the U.S. Secretary of Transportation Ray LaHood (a Republican who spent 14 years in the House, & six on the Transportation and Infrastructure Committee) has called “the worst transportation bill” he’s seen in decades. It is also a bill that the New York Times editorial board called “terrible.” In my opinion it is also a bill that puts policies in place that will cost current transportation workers their jobs.
It frustrates me to no end that while there is no time to waste to enact a surface transportation bill that puts millions of Americans to work fixing our transportation system that is falling apart, that the House puts forth a bill designed to serve the interests of K Street lobbyists and their corporate clients at the expense of the American people.
H.R. 7 undoes much of the good work the U.S. Department of Transportation has done over the last 3 years, and if enacted will have a chilling effect on jobs in the transportation sector.
The bill includes heavy-handed federal mandates forcing wholesale privatization of public transit systems. For example, transit agencies could only maximize their federal share of funding if they agree to privatize major portions of their operations. These mandates represent a radical departure from bipartisan policy that has left privatization decisions to local transit authorities. If enacted this would most likely cause layoffs of public transit workers across the country.
This is nothing more than a return to Bush administration policies that go beyond economics. These provisions are about shrinking government and are driven by an obsession with free market solutions that often are neither appropriate nor practical.
For years anti-government zealots have told policy leaders that if poor management ruins service delivery; if aging buses plague a city; or if inadequate investment is causing mass disrepair of city infrastructure, then privatization - instead of investment and sensible reform – is the solution.
In this bill public mass transit is targeted by pro-privatization activists who, despite evidence to the contrary, believe the private sector can always deliver these services more efficiently while saving taxpayer dollars. These advocates for mass transit privatization forget that our federally supported transit network was created in the aftermath of bankrupt or near bankrupt private operators in the late 1950s and early 1960s who could not operate a private, profitable mass transit system. Yet, these advocates of wholesale privatization of mass transit declare that competition and private sector discipline will bring cost savings for taxpayers. Their claim ignores a growing body of evidence which demonstrates severe problems of startling cost overruns, threats to safety and shabby service caused by poorly conceived privatization and contracting initiatives. In order to meet the nation’s transit needs, our federal policies must invest the necessary resources to expand, not destroy, public transit services, and to impose more rigorous performance, labor and safety standards on private contractors when they are allowed.
What I find even more egregious is that as if this language in the base bill was not enough, the House Ways & Means Committee’s proposal to finance this bill, the American Energy and Infrastructure Jobs Financing Act of 2012 (H.R. 3864) guts the Mass Transit Account (created by Congress with the blessing of President Ronald Reagan in 1982) by diverting nearly half of the federal investment in public transit ($25 Billion) that comes from dedicated fuel tax revenue.
What this means is that the Mass Transit Account which currently receives roughly 2.86 cents of the 18.4-cent-per-gallon gas tax, is eliminated, and to the extent fuel tax receipts for FY 2012 were already credited to the Mass Transit Account, this bill requires that money to be transferred from the Mass Transit Account to the Highway Account of the Highway Trust Fund. Under this bill, going forward the gas tax will only fund highways.
In place of the Mass Transit Account, this package creates an “Alternative Transportation Account” and puts in it a one time $40 Billion transfer from the General Fund. While Republican lawmakers argue that $40 billion is more money than the original trust fund, the yearly allotment of transit money would have to be fought for every appropriations cycle year after year, and after 2016, there is no more dedicated funding. This move will devastate local transit agencies, jeopardize needed services and threaten jobs in mass transit. It also comes as ridership on mass transit is at an all-time high and the need for affordable transportation and sustaining transportation jobs couldn’t be higher. The American Public Transportation Association (APTA) has some more great info on why this is a very bad idea, I suggest reading it.
Now in this age of austerity, with the Republican Party more concerned about deficit reduction than creating jobs, there is no way $40 billion dollars is coming out of the general fund, without an offset, or a pay-go. In non-wonk speak they have to fill the giant $40 billion whole they created in the General Fund with $40 Billion from somewhere else. Now where are Republicans going to find that money? Create a new user fee? a new tax? No, that might be rational, instead they are going to pay for it … wait for it … with federal workers pensions! Yes the House Oversight and Government Reform Committee’s bill H.R. 3813 Securing Annuities for Federal Employees Act of 2012 aka “Federal Employee Pension Reform” uses federal employees as a piggy bank to put the $40 billion taken from the General Fund for the new “Alternative Transportation Account” back in the General Fund.
This proposal would increase employee contributions to the Civil Service Retirement System (CSRS) and the Federal Employee Retirement System (FERS) by 1.5 percent of their salaries over a three-year period, starting next year. Employees enrolled in FERS currently give .8 percent of their paychecks to the pension fund. In short, most federal employees would pay more for pensions worth less. Conveniently, the savings from those provisions would be somewhere around $40 billion. All this so House Republicans don’t have to raise the gas tax.
However that is not all. Here are a few other reasons why this House package is so bad:
- Lacks flexibility measures – championed by Reps. Russ Carnahan (D-MO), Steven LaTourette (R-OH) and a bipartisan majority of the Transportation and Infrastructure Committee – that permit transit systems to stave off service and job cuts and fare hikes during times of economic distress.
- Ensures the firing of more than 2,000 Amtrak workers who serve the customers in food and beverage operations and who act as vital first responders in the event of accidents or incidents on trains.
- Slashes Amtrak’s funding by one-third at a time when the company is experiencing record success, killing good, middle-class jobs, threatening vital Amtrak services and placing passengers at risk
- Rolls back vital transportation safety programs such as firefighter training and health and safety protections for workers transporting hazardous materials.
- Eliminates mandated collision avoidance Positive Train Control (PTC) systems that not only save lives, but create jobs. (Alstom Transportation is currently in the process of hiring 200 new workers at its West Henrietta, NY facility who would be making the signaling equipment that is used in PTC systems.)
- Opens nearly all of America’s coastal waters to oil and gas drilling, including environmentally fragile areas that have long been off-limits in order to raise revenue to help make up what has become an annual shortfall for transportation financing.
- Demolishes significant environmental protections by imposing arbitrary deadlines on legally mandated environmental reviews of proposed road and highway projects, and by ceding to state highway agencies the authority to decide whether such reviews should occur.
House Republicans know that these funding proposals and many other policies are not going to be accepted by the Senate. Moreover, the majority of these decisions were made behind close doors, with neither an opportunity for public input, nor (in some cases) consultation of the minority party.
Instead of working on a bi-partisan bill that would put Americans back to work, it seems more and more that this legislation is first designed to promote the agenda of corporate interests who fund elections during an election year. Conveniently, it also attacks many of the interests of traditional Republican political adversaries.
This is not governance, this is bold political strategy. This is using a position designed to serve the American citizens, to design legislation to serve your party in an election year in the hope it will please contributors to your PAC, while weakening the support of your political opponents, wearing them down, and making them expend resources that would be used otherwise in an election year to defeat politically pointed proposals. This legislation and the process involved in its crafting is the epitome of what is wrong in with our government in Washington, DC.
With its archaic rules, and inability to do anything without 60 votes, I usually consider the U.S. Senate to be the place where good ideas go to die. However, the current lot running things in the U.S. House of Representatives are making the US Senate look downright progressive. As milquetoast as I personally may find many of the provisions in their Surface Transportation package (MAP-21 & The Federal Public Transportation Act) to be (compared to what I think they could do) at least they can put their differences aside and try to put a compromise forward that will put people to work.
At least the Senate is proving it still has an interest in governance. Until the Republicans in control of the House of Representatives can prove they have an interest in governance, they shouldn’t have the control of that governing body. It is no wonder this Congress is less popular than polygamy.
On behalf of the 12.8 million Americans who remain unemployed, we all need to assure those around us are aware of what is being done and organize to make sure that those responsible for crafting policies to assure a long-term economic recovery strategy, have that, and not the next election, as their main interest.
On Monday, Clyde’s post titled “Why don’t economists get it on manufacturing?” did what I’ve been wanting to do for a very long time: put the former Economic Advisers to President Obama in their place for not understanding economics.
Here is an excerpt, but please go read the whole thing, you’ll be much better off for it:
Writing in yesterday’s New York Times, Romer debunks the present wide concern over the decline of American manufacturing and the call by many, including the president in his State of the Union address, for tax breaks and other policies to help shore up manufacturing. She first notes that services industries are as valuable to the U.S. economy as manufacturing, emphasizing that consumers value haircuts as much as hair dryers and that earnings from exporting architectural plans to Shanghai are as real as those from exporting cars to Canada.
This sounds good because all industries have their value and no one wants to denigrate a particular industry or type of respectable work. But it’s just not true. Consumers may not value haircuts less than hair dryers but economists should. Production of hair dryers can be done in large factories that produce economies of scale. Such scale economies lead to lower prices, lower inflation, higher productivity and thus higher wealth creation for the whole economy. In addition, producers of hair dryers invest in research and development to foster innovation of new, more efficient, less energy using, and easier to produce dryers.
Now don’t get me wrong. I love my barber and want to be sure she stays in business, but her work doesn’t yield any of these benefits to the economy. It doesn’t have economies of scale, falling costs, rising productivity, or investment in R&D. So while I don’t want to lose my barber, I also don’t want to lose my hair dryer production unless it can be replaced with something that contributes equally or more to wealth creation. And I don’t see retraining the hair dryer workers to be hair dressers as a gain for the economy.
Clyde then goes on to point out several points about manufacturing that I have been blogging about over on the BlueGreen Blog, as have my colleagues Dr. Chris Busch and Michael Williams. He also does a great job of pointing out what the folks over at the Alliance for American Manufacturing have been saying all along:
U.S. proponents of manufacturing are not asking for special treatment or support that discriminates against services industries. They are merely urging that steps be taken to offset the market distortions being caused by the foreign industrial policies.
It’s no surprise that with people like Christina Romer and Larry Summers as economic advisers that it took President Obama until 2012 to get the message right. It also makes me rue all the time this administration wasted following their bad advice.
In closing Clyde puts it best, and all economists need to realize this:
The point is that we should not have to make some false choice between manufacturing and services. We should be able to have both in those industries in which America can be competitive on the basis of prevailing market forces.
Now go read his whole blog.
This blog post owes a lot to the work of Clyde Prestowitz & Kate Heidinger in an article they published in the Alliance for American Manufacturing’s (AAM) Manufacturing A Better Future For America called the Evolution of US Trade Policy, so please give it a read if this sparks your interest. I revisited the above mentioned article yesterday after reading Matt Yglesia’s ill-informed piece on the President’s State of the Union over at Slate. While I was getting my thoughts together I’m happy to say Scott Paul from AAM managed a great point by point rebuttal, which I highly recommend.
What do you actually know about US trade policy? The more I read people’s take on trade issues, the more I am convinced people do not have a grasp on US trade policy, how we got here, and the economic issues surrounding it as it relates to manufacturing.
As the President spent a good deal of time talking about supporting domestic manufacturing in his State of the Union speech, it is important to understand why that needs to happen.
For nearly 60 years, the needs and interests of American manufacturers took a back seat to the country’s geopolitical interests and the interests of the U.S. financial sector.
After World War II, the victors re-established financial order via the creation of the International Monetary Fund, which subsequently created a world dollar-gold standard. What this meant was that now, in order for world trade to recover, there now had to be a steady supply of dollars. The Marshall Plan created a strong US government emphasis on buying abroad and opening the US market in order to increase the supply of dollars circulating in the world.
In the post war era, with the evolution of the General Agreement on Trade and Tariffs (GATT), most favored nation status, and the concept of “national treatment”, US policymakers assumed that the US industrial and technological dominance would continue on into the future.
The “trade not aid” mentality that dominated at the time did not see the “aid packages” going to Europe and Japan as part of trade agreements providing an unfair advantage, but as strategic consolidations of a post war that could stand up to the Communist bloc and help rebuild the war ravaged economies of Europe and Asia.
Unfortunately, these trade agreements made the economies of scale of the U.S. market available to overseas producers while the US obtained no reciprocal market access. Essentially US negotiators created a structure that increasingly put U.S. manufacturers at a disadvantage.
The United States saw a rapid increase in imports, cheap foreign imports had an adverse effect on domestic industries, and certain countries realized they could receive all the benefits of a trade agreement without paying any of the costs, and as a result, the US remains exposed to a flood of inexpensive imported goods.
During this time the United States lacked any overarching economic strategy. Public policies designed to support U.S. industry were random in their application, ill-conceived and usually ineffective at helping domestic manufacturing become more competitive in the global market. Policies designed to promote consumption-based growth combined with asymmetric trade relations led to massive imbalances in global trade. As a result the United States has accumulated a colossal trade deficit with nearly every major trade partner since about 1970.
On Tuesday we heard President Obama give a State of the Union speech that signaled a reversal of the policies that lead us to where we are. The polices laid out in prior State of the Union addresses of both preceding Republican and Democratic administrations laid out policies of unilateral free trade that were unconcerned with the structure of the U.S. economy and what it produces and provides. There was a general disdain of industrial policy that supports specific economic sectors like the auto, transportation, and clean energy industries. Prior to Tuesday all the emphasis of Presidential rhetoric focused on the service sector and financial industries as the future of the U.S. economy.
In my opinion the President’s vow to get tough on unfair trade practices is welcomed but it is also long overdue. The United States should have put equal focus on enforcing trade laws as it has opening new markets. I am happy to see the President creating a new trade enforcement group that would use investigators and other federal resources to combat unfair trade practices.
The change in the rhetoric coming from the President is refreshing, now I just hope it can change the culture in Congress and translate into some action.
For any of you as wonky as me that likes to read the details, check out The Blueprint for an America Built to Last.
I woke up this morning with this song in my head: New Order “State of the Nation”
Its been on a bit of an infinite loop all day, much like the world inside the beltway concerning President Obama’s read on it, which we will be getting to hear at 9pm eastern today.
If you find yourself a little curious about what is going to be said you can check out some behind the scenes footage the White House has put up.
Expect a lot on building a better America, American manufacturing, and ensuring our energy future – all things I find myself talking about quite a bit.
I’m interested to see how much this State of the Union (SOTU) address is going to come out swinging with an eye on the campaign trail, however I’m more interested in seeing any favorable rhetoric backed up with sound policy decisions and the will to implement them.
More to come…