Name it or lose it

Name it or lose it

So. The WWC – the White Working Class – took to a man who told them he would re-establish tariffs, end all the free trade agreements, and magically the steel industry and capital goods manufacturing would return.  This was the message from Donald Trump. It’s also the message from Bernie Sanders.

Neither of them has a clue – NOT A CLUE – what REALLY happened to American manufacturing.

If you don’t get the causation correct, you can be assured your solutions won’t work and might make things worse.

A brief history:  after World War II the United States was in an unprecedented position experienced by no other nation in history.  As the only major nation not beset by war directly – we were not bombed, strafed, invaded – our infrastructure and capital were intact. We became world leader by dint of that one fact, and it was our corporations and financial institutions that led the rebuilding of every industry in Europe and in many other nations. The result was that we did not experience the traditional downturn in our economy common after war. We exploded with profits in double digits in every sector since we were making money hand over fist.  Some of it was rebuilding other nations’ companies. Much of it was locating our companies within Europe to get behind the tariff barriers and produce goods for those nations while their own tattered and destroyed infrastructure was being rebuilt.

Ford Motors had had a presence in Europe, including Germany, before WW II (its collaboration with Nazi forces is a story unto itself) that gave it a base from which to grow immediately after the war.  In 1946 it started its coordinated expansion plan that led to Ford becoming the single largest manufacturing employer inside Europe by the early 1960s.

This was excellent for Ford as a corporation, but it was death to US made cars as exports. Ford France produced French cars, not American-made ones.

Other manufacturers from electronics to chemicals to oil to tooling and onward all made the same leap into Europe and other nations based on exactly the same accumulation strategy – what was produced abroad could be sold abroad without running into those pesky tariff barriers. The imbalance of U.S. import-export trade began at this juncture.

The death of American manufacturing began with this strategy of avoiding tariff barriers.  With more production humming along overseas, investment in U.S. plants was sluggish at best. The companies were overflowing with profits abroad, so why invest in old, outmoded plants in America?

The second issue was the revitalization of a Prohibition-Era tax law that was designed to help the liquor-related companies put out of business by the 18th Amendment.  It permitted companies impacted by the law to take an accelerated depreciation on their capital investments and get cash – yes cash – back from the government. This was to help them invest quickly in non-liquor businesses, and it was meant originally to be available to only companies that were put out of business by circumstances beyond their control. In 1964 the limitation on the use of this law was removed – now any company could close, write down its capital, and get a bailout from the feds.

By 1973 our economy hit a slowdown. Everything that could be rebuilt was done, we created a manufacturing base overseas that was newer than our own, the oil crisis came, and we deregulated currency making values volatile and subject to massive fluctuations in how competitive we could be. If the dollar was high, it was good for banks and lousy for exports. Imports were massively cheaper – all in all, our industrial base took major hits on profit.

By 1976 new strategies for bottom line accounts took hold, shifting companies away from manufacturing to paper investment “profits”.  In Youngstown, OH the tax write downs was the main reason Lykes Steamship purchased the profitable but unspectacular Youngstown Sheet & Tube plant. They never wanted to run it – they wanted to close it for the depreciation and cash back from the government. That was free money for their bottom line. They did not care that thousands of jobs would be gone forever, thousands of people marginalized.  When US Steel then did the same to their plant, the photo of the demolition became an iconic image of the new rust belt – and the photo never showed the 10,000 Youngstown residents outside the demo site watching their lives go to hell.

The community tried to buy the plant – and that story, a heartbreaking one – can be seen in the five part series “Shout Youngstown” on YouTube. Oh, what might have been…

The same shutdown fate was true of Bethlehem, the nation’s second largest steel corporation.  In 1976 the Board of Directors ended the leadership by steel production people and brought in the former head of Price Waterhouse accounting who began closing facilities including the rail mill. This occurred exactly as the government was rebuilding the Northeast rail system, but the fast cash write down exceeded what Bethlehem could return with systematic yearly profit. Then in 1983 the entire plant closed, and Bethlehem sweetened its accounts with almost one billion dollars in government rebates. Over 21,000 jobs went away overnight taking the areas entire economy with them. But so what? Stockholders were delighted…for a year.

Across the nation, the shutdown strategy, the outsourcing to cheap labor was gaining momentum well before NAFTA or any other ‘free trade’ deal was a twinkle in George H.W. Bush’s eye.  Maquiladoras that produced at the Mexican-US border put production behind the Mexican tariff wall. Re-imports were made tariff free with ‘domestic content’ so that for garment manufacturers, putting button holes – HOLES – into Mexican made clothes was justification for being tariff free.  We did not need free trade – we could make US-owned exemptions.

It was largely the cost of currency that led to the 1980s flood of production overseas.  The soaring dollar in early Reagan years was justification for hitting unions for ‘overpriced’ labor, and no amount of logic that it was an artificial valuation due to high currency value made a dent in outsourcing, anti-union strategies, right-to-work incursions.  Labor was the scapegoat just as industries were the cash cows. Industrial production was doomed by conservative anti-labor corporate greed, and Americans bought into it with scant push back against any of it.

From New York City’s public employees to Chrysler’s bailout to the air traffic controllers, the entire goal of conservative corporate and finance interests has been to regain “prosperity” by screwing labor. That is failed to work long term – recessions became commonplace and will do so again – is a failure of understanding the real problem of the capital-labor dynamic.  Henry Ford, rightwinger that he was, knew that if you wanted a robust consumer base, you had to pay well at the production end.  Forgetting that consumers are actually good producers is now a global issue.

Bern and Trump name the problem entirely wrong – it was never NAFTA and other trade agreements that caused any of this, and restoring tariffs will make it only worse.  One cannot stop overseas production even though it might make a dent in re-importation of goods to the US.  Corporations, grounded in their property rights over every other right of labor and consumers, will still outsource, automate, union bust, deskill, and find every trick in the book to shove wages down while keeping profits high.  The issue is far more complex than ending trade agreements.

By looking at the booming postwar economy 1945-73 but failing to look at the circumstances 1973 on gives us the wrong view of where we now are. By looking at NAFTA as an explanation for all our woes we fail to see what the real sources of deindustrialization and job loss have been.  By failing to understand that the assault on labor is global and that it has to be rectified with hard- hitting, internationally-sanctioned trade agreements incorporating labor rights and pay, we are going to reproduce the 19th century sacrifice of labor standards of absolute misery and exploitation.  We will do so in no small part by creating racial and ethnic animus along the way. Having working people turn against one another is a great way to keep them from turning on capital.

If you don’t identify the problem correctly, you cannot provide the right solution. Bern, Trump, and other simplistic analysts are playing into the rightwing corporate agenda.  It’s up to us to call it out and to get this right. We can do a lot to preserve and protect what industry we have, maybe even rebuild some of it, but we will fail with knee-jerk, simplistic “solutions” to a problem that wasn’t the issue at all.

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November 22, 1963

November 22, 1963