David Warsh: We were warned that things would go wrong
Lancaster, Ohio, devastated by the effects of the new forms of corporate financial manipulation that took off in the 1980s.
SOMERVILLE, Mass.
The appearance of a new edition of America: What Went Wrong?, a 1992 best-seller by Donald Barlett and James Steele, prize-winning reporters for The Philadelphia Inquirer, is an opportunity for those of us still in the news business to reflect. I have no problem with the subtitle they have added, The Crisis Deepens. But what was I thinking when the book was published?
What Went Wrong appeared in the spring of 1992, based on a series that had appeared in the newspaper the autumn before. Already there was plenty of carnage to fill chapters titled “Dismantling the Middle Class,” “Shifting Taxes – from Them to You” and “The Chaos of Health Care.” H. Ross Perot was warning about the “giant sucking sound” that would accompany passage of the North American Free Trade Act, as American manufacturing jobs were shifted to Mexico. Reagan had made the idea of NAFTA part of his 1980 presidential campaign. George H.W. Bush had signed the Canadian portion of the measure in 1988. Bill Clinton defeated Bush in November, while Perot received 19 percent of the popular vote. The overall treaty was ratified by the Democratic-led Senate in December the following year.
The U.S. was deep in the political/cultural mood-swing I have come to think of as “the market turn” – away from the propensity to regulate, towards enthusiasm for the promise of technological and financial innovation, with a predisposition toward globalization and reliance on market processes to sort it all out.
My prior beliefs about America’s foreign trade at the time were informed mainly by a little conference volume from 1986, Strategic Trade Policy and the New International Economics, edited by Paul Krugman, of MIT. Twenty-two years later, Krugman would be recognized with a Nobel Prize in economics for the work he had done in those years about competition among what we had recently begun calling “high-tech” products. “Industrial policy” had been a somewhat daring taste, but now it was coming out of the closet.
The fast growth of Japan in the 1970s and ’80s had been a false alarm; you couldn’t conclude that America has “gone wrong” from Toyota’s success; only that it had received a clarion wake-up call. By 1990 Japan’s economy was mired in recession. But things were definitely changing.
The first leveraged-buyout book I read was When the Machine Stopped (1989), by Max Holland, about a disastrous Kohlberg, Kravis & Roberts buyout 10 years before of toolmaker Houdaille Corp. I reviewed American Steel: The Metal Men and the Resurrection of the Rust Belt (1991), by Richard Preston, about the new scrap mill industry, then read with special care the brilliant Making Steel: Sparrows Point and the Rise and Ruin of American Industrial Might (1988), by Baltimore Sun reporter Mark Reutter. By then I was reading books about Wall Street, of which Highly Confident: The Crime and Punishment of Michael Milken (1992), by Jesse Kornbluth, seemed the most damning.
But the eyes-wide-open moment for me arrived with IBM’s decision in 1994 to sell its personal-computer business to China’s Lenovo. I had reviewed Big Blues: The Unmaking of IBM (1993), by Paul Carroll, of The Wall Street Journal. So I knew something about how Bill Gates had snookered IBM out of the far more profitable than hardware personal-computer software industry. The question was, could a Chinese company continue to make a success of a high-gloss American manufacturing business?
Ten years later, the answer was in: They had, and then some. By then, Harvard economist Dani Rodrik had published his heretical Has Globalization Gone Too Far? (1997). The 1999 Seattle protests as China prepared to join the World Trade Organization had made it clear there was trouble on the horizon. William Overholt had been prescient in The Rise of China: How Economic Reform Is Creating a New Superpower (1993), but not until James Kynge, of the Financial Times, published China Shakes the World: A Titan’s Rise and Troubled Future (2006) were the dimensions clear.
By the time that David Autor, David Dorn and Gordon Hanson published “The China Shock Learning from Labor Market Adjustments to Large Changes in Trade’’ in the Annual Review of Economics, in 2016, Donald Trump has become the Republican Party’s presidential nominee. “The China Shock” and the work that’s come after may warrant another Nobel Prize 20 years hence; and an avalanche of books about American job losses has roared through in recent years, including the best-selling Hillbilly Elegy: A Memoir of Family and Culture in Crisis (2016), by the many-faceted J.D. Vance. My favorite was Glass House: The 1% Economy and the Shattering of an American Town (2017), by Brian Alexander, about Lancaster, Ohio, his hometown.
It was when I read An Extraordinary Time: The End of the Post-war Boom and the Return of the Ordinary Economy (2015), by economic journalist Marc Levinson, that my sense of the overall narrative crystalized. Those first 30 years after World War II had indeed seen a period of remarkable economic growth in the United States and Europe – les trente glorieuse in France; a “golden age” in Britain; the Wirtschaftswunder in West Germany, il Miracolo in Italy. But those first 30 years were a phenomenon of the Atlantic World. The next miracles of growth occurred around the Pacific. It was U.S. power and America’s commitment to principles of free trade that facilitated the growth that brought down communism, and created a vastly richer and more equal world – equal, at least, among nations. Does that make it safer, too? The world certainly has become dangerously warmer. There is nothing “ordinary” about the global economy of today.
I didn’t vote for Ross Perot in 1992. Nor did I believe America had “gone wrong” then, at least not in a general way, though abuses were beginning to pile up. Barlett and Steel were definitely on to something, along with other center-left journalists, in particular Thomas Edsall, then of The Washington Post, and David Cay Johnson, then of The New York Times. Only in 2016 did America’s elected government decisively break bad, at least for a time. Thanks to Perot and Barlett and Steele and all the others, including young Paul Krugman, we can’t say we were not warned.
David Warsh, an economic historian and veteran columnist, is proprietor of Somerville-based economicprincipals.com, where this column first appeared.
The ambiguities of the Amazon mercantile jungle
From Robert Whitcomb’s “Digital Diary,’’ in GoLocal24.com
Boston did well in failing to snare an Amazon “Second (or is it third?) Headquarters’’. The hysterically hyped project would have overwhelmed city services; stolen a lot of tech talent from the startups that are the foundation of the region’s economic future; worsened the city’s traffic woes, and driven up already sky-high housing costs.
And it’s unlikely that Boston and the Commonwealth of Massachusetts would have come up with a bribe to Amazon’s Jeff Bezos that would have been big enough to offset Boston’s drawbacks, especially that it’s probably too small for the likes of Amazon. Despite the company’s show of looking all over America as a place for a “Second Headquarters (which of course turned out to be two “Second Headquarters’’ – New York and metro Washington, D.C.), it probably always planned to set up in cities too big to be overwhelmed by it, and with many, many techies already in residence. The apparently bogus national auction seems to have raised the bribe money that New York and Virginia, whose Washington inner suburb of Arlington, Va., won the prize, were willing to pay. Amazon says it will put 25,000 employees in each place.
Massachusetts Gov. Charlie Baker and Boston Mayor Marty Walsh were unwilling to get into a bidding war with the rest of the country for the projects.
New York State is giving the company a package that includes $1.525 billion in incentives, including $1.2 billion over the next 10 years as part of the state’ s Excelsior tax credit. The state also will help Amazon with infrastructure upgrades, job-training programs and even assistance “securing access to a helipad”. There’s still some confusion about the total package, but by one measurement, it works out to $48,000 per job.
Virginia, for its part, is giving the company an incentive package worth $573 million, including $550 million in cash grants – and a helipad (for Bezos’s convenience to commute to his Washington Post?) in Arlington, right across the river from Washington, D.C. The Old Dominion also pledged $250 million to help Virginia Tech build a campus in Alexandria, near the Amazon site, with a focus on computer science and software engineering degrees. Folks are still trying to figure out the precise total cost.
By one estimate in this rather confusing bag of bribes, the basic package works out to $22,000 per job. We’ll see.
(As sop to the Heartland, Amazon will also put a 5,000-person facility in Nashville, at an estimated $13,000 a job.)
So the individuals and companies already in New York and Virginia will subsidize through their taxes an enterprise that had $178 billion in 2017 revenues and is run by the world’s richest person. And of course it’s impossible to know how well Amazon will be doing in a decade. Might it become the online version of Sears? Nothing lasts.
Think of how much stronger their economic development would be if New York and Virginia had put the bribe money into improving transportation infrastructure, education and other stuff that would make their markets better for everyone!
And will Amazon keep its promise to create all those jobs? Don’t bet on it! Big companies are notorious for breaking employment promises. An irritating recent example:
Wisconsin, with an outrageous $4 billion subsidy, lured Foxconn, the Taiwanese manufacturer infamous for not keeping employment promises, to the state with the promise of 13,000 jobs. But the company now plans to employ only a quarter of that; much of the work will be done by robots. You can bet that Foxconn would like all of the work done by robots! One estimate is that the project works out to $500,000 per Foxconn job.
No wonder that Scott Walker, the Republican governor who pushed for this deal, just lost his re-election bid. But then, Democratic and Republican governors and mayors do these deals with enthusiasm.
The politicians know that such extravaganzas sound great, for a while, and that few citizens look into the fine print or scrutinize these sweetheart deals for their long-term macro-economic effects. And by the time that the full bill comes due, the politicians who initially got credit have moved on to something else.
Anyway, such places as tech-rich Greater Boston (and less tech-rich Providence) would do better to make their communities better places in which to start and nurture companies than to break their banks by trying to get big ones from far away whose loyalty is apt to be remarkably evanescent. That isn’t to say that Boston (which already has a couple of thousand Amazonians) and Providence (with its graphic and other designers) won’t benefit from spillover Amazon jobs from the New York operation. They probably will.
A March 2018 report by the Brookings Institution says that state and local governments give up to $90 billion worth of subsidies to individual businesses each year. How much of this is worth it? To read the report, please hit this link.
Columbus, Ohio, offers an example of how an economic-development policy delighting in diversification, encouraging local startups, and improving local amenities and infrastructure, as opposed to focusing on luring a big, fat famous company, as well as strong civic engagement by a city’s established business community, can pay off.
From 2000 to 2009, Columbus added 12,500 jobs. From 2010 to the present, it has added 158,000!
To read more, please hit this link.