(This is the seventh of an eight-part series on changes to labour employment in the future, causes of this upheaval, and some possible measures to mitigate their disruptive effects. Most of what is described in the foregoing is applicable to western developed countries but middle-income countries such as Guyana are in the crosshairs. The difference is timing. Further, Guyana does not possess the skills-set to prolong the onset of these changes. The country has received some service outsourcing jobs but these are low-skilled positions. It is therefore shared with the public to help focus attention on the decision-making needed to avert the imminent calamity.
In past installments, I described the nationalist fervour sweeping the western developed countries of America and Europe characterized by the emergence of Donald Trump and Brexit. The increase in income inequality is causing the stagnation workers are reacting to, and overpopulation leading to climate changes along with automation displacing overpriced labour, will have future ramifications. One short-term solution is to allow the labour market to function without restrictions and for governments to subsidize wages below a certain living standard with transfer payments. In the long-run, the ‘invisible hand’ will synchronize labour and living costs. The people of Switzerland recently voted down an alternative of Universal Basic Income programme where each citizen is paid a minimum income by the state to allow them to cope with technological changes. Here I describe another alternative which is being called ‘trumponomics’, reflecting USA President Trump’s expected approach to saving jobs there.)
I started by describing the conditions that gave rise to nationalism in America (Trump) and across the European Union. And now that Trump is the President of the United States, the world is starting to get a glimpse of how he intends to save American jobs.
After his election, Trump called Apple’s CEO Tim Cook and asked him to bring jobs back from China. Although Cook made some vague promises about discussing with its Chinese manufacturer, Foxconn, such a move is impractical without major subsidies from state and federal governments in the US. That’s not the way capitalists operate. The US manufacturing loaded-hourly-labour-wage rate is US$37.71 compared to US$4.12 in China. At that disparity, Mr. Trump would have to come up with major subsidies to dull the attractiveness of Chinese manufacturing to companies like Apple.
So Mr Trump sought a softer target, Carrier. Carrier is a HVAC company located in Indiana, the home state of Governor Pence, Trump’s Vice-President. It had announced moving 2,100 jobs to Mexico where the manufacturing loaded-hourly-labour-wage rate is US$5.90, and productivity similar to the US, thereby reducing its cost by US$65 million annually. Trump was able to negotiate an agreement to keep 800 of those jobs in the US for state tax concessions of US$7 million over ten years and a yet unspecified subsidy from the federal government. One would not expect Carrier to accept an offer where it was not fully compensated for its opportunity cost, the benefit given up by its actions, except that the company earns 10% of its revenues from government contracts making it very pliable to Trump’s wishes. Thus, the soft target.
But the Carrier arrangement establishes a template of how Trump meets his campaign promise of retaining manufacturing jobs in the US. He intends to bully and bribe companies! As Bernie Sanders quite correctly observes, companies with no intentions to leave will now threaten to do so in order to receive a bribe. It flies in the face of all that his Republican Party stands for – intervention in the free market and big government.
Steven Rattner, a former President Obama advisor, is not very enthused by Trump’s approach. He says, “I don’t see how the Carrier experience — even in its imperfect state — can be replicated. It’s simply not realistic for Mr Trump (or anyone) to run around the country subsidizing manufacturing jobs at high costs.”
When compared to the previous recommended solution in Installment V of allowing unfettered labour markets to function in setting the wage level and where needed, government transfer payments made to ensure workers meet their physiological needs, Trump would support leaving the uncompetitive wage level in place and subsidizing the corporation to keep it competitive. His approach is somewhat convoluted and piecemeal whereas the other is comprehensive and universal. Because the subsidy is going to the corporation instead of the workers directly, workers are still at risk for automation. Shortly after the Carrier announcement, the CEO of United Technologies, which owns Carrier, Gregory Hayes, announced that some of the 800 jobs would be lost to automation, anyway. Corporations would take the
subsidy but maximize their returns by substituting technology for labour. A windfall for corporations!
Trumponomics is the worst solution possible. There are no winners. Companies outsource jobs to foreign countries such as India, China and Mexico, because their wage rates are competitive with automation. Otherwise, they would simply remain in place and automate. Forced repatriation of jobs back to high-wage-rate countries will quickly lead to their technological displacement with increased world-wide unemployment. The low-wage-rate countries lose from the repatriation, and the high-wage-rate ones from automation.
However, the common thread in all of these recommended solutions under discussion including Trump’s, is the role of government in the future. Governments will expand as they become the conduit of transfer payments between taxpayers and workers or in Trump’s case, between taxpayers and corporations. President Obama, in his farewell address, captured this sentiment when he said that those benefiting from this new dispensation would have to subsidize those who lose.
As this series is being published in a developing country, Guyana, I’ve added an eighth installment to examine what action plans such countries need to employ to ameliorate the imminent changes.
