Why Public Investment in Job Training and Apprenticeships Would be Valuable – And Why This Won’t Happen

The “America first” steamroller moves on, now rolling over the global free trade system.

There are indeed workers in the U.S. that have been left behind by globalization, and who are suffering economically even as aggregate growth continues. Shouldn’t U.S. policy makers act to provide support for these workers?

Indeed, they should. In fact, the weakness of past efforts to do so – such as through the cumbersome and limited Trade Adjustment Assistance Program, help explain the current populism.

What’s wrong, then, with striking back at countries with whom the U.S. runs large trade deficits, to create fairer trade and bring back or at least save jobs?

Several things.

First, a focus on bilateral trade deficits is completely misguided. The U.S. runs bilateral deficits in goods trade with Cambodia, Kenya and Algeria (among many others). Is the U.S. “losing” to these countries? Is the U.S. economy harmed by the footwear imported from Cambodia? By the apparel and coffee entering the U.S. market from Kenya? By crude oil imported from Algeria? Or do consumers benefit from these goods, and are oil refiners able to profit from crude oil imports, just as other manufacturers profit from imports of intermediate goods to which they add value?

The U.S. of course runs much larger trade deficits with China and with Germany. More on this below.

Second, as is widely established, job losses in manufacturing have several sources; most studies attribute the largest share of manufacturing job losses to technological change. Protectionism will therefore do nothing to bring jobs back.

Third, protectionist measures enacted by the current administration have been undertaken unilaterally. This renders the U.S. hostile to the multilateral rules-based international system it was instrumental in setting up, and from which it has benefited disproportionately (if anything, the rules have been tilted heavily in favor of U.S. interests to the detriment of developing economies).

Fourth, there will undoubtedly be retaliation for U.S. protectionism. This brings us to China. Scholars of U.S.-China economic relations point out that the bilateral trade deficit between the U.S. and China is misleading.

As Yukon Huang of the Carnegie Endowment points out, with global supply chains so integrated, Chinese producers import semi-finished products from elsewhere in Asia and add a small of amount of value before exporting the finished product to the U.S. The entire value of the product shows up as an export to the U.S., amplifying the size of the U.S. trade deficit with China.

China’s violation of intellectual property rights and insistence that technology transfer accompany foreign investment is a genuine problem. However, knowledgeable accounts indicate that the matter is best addressed through engaging China, whose record in these areas is improving as its economy develops. Efforts to negotiate a bilateral investment treaty, for example, would be valuable to the U.S. economy. But such an endeavor would require diplomacy – as well as patience and resistance to populist instincts, two qualities absent at present from U.S. foreign economic policy.

Just as the noisy embrace of protectionism is a product of domestic politics in the U.S., pressures already are building for China’s government to enact strong retaliatory measures.

China’s retaliation will be targeted on such products as soybeans and aircraft, U.S. products for which China is the largest market. There will be concentrated economic pain in the U.S. Furthermore, as economists such as Mary Lovely of Syracuse University point out, the exchange of protectionist measures will have little net effect on the U.S. trade deficit with China.

One of many problems with “America first” is that America is not alone in the world.

So, returning to the workers who’ve been displaced by economic change, is there a better way to respond? This brings us to the case of Germany – and back then to the U.S. The U.S. runs a large trade deficit with Germany, too. Yet one overlooked German export to the U.S. is its apprenticeship system.

Apprenticeships are integrated into the German economy across economic sectors, with about one half million young Germans entering the apprenticeship system annually. One reflection of the success of the apprenticeship system is the extent to which quality manufacturing continues to thrive in Germany.

 

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The system is a public-private partnership with small, medium and large enterprises offering apprenticeship slots and publicly-funded vocational schools offering formal training to accompany training in the workplace. Employers create standard training requirements for each sector.

While firms see the value in investing in workers, the German government embraces the collective gains that accrue from having a highly skilled and productive workforce.

Some German firms have set up apprenticeships in their U.S. locations with Siemens, for example, establishing apprenticeships at locations in North Carolina, Alabama, California and Georgia; BMW setting up an apprenticeship program at its plant in Spartanburg, South Carolina in which it provides paid part-time positions with workplace training and fully paid study toward an associate’s degree and the promise of a job at the end of the program; and the Georgia Technical College System entering into an apprenticeship partnership with the Bavarian Ministry of Education, Culture and Science.

The U.S. government could embrace the opportunity to encourage and expand such programs. The Obama Administration modestly expanded funding for apprenticeships in 2015 and 2016.

But do not expect public investment in American workers under the current administration. Such investments are an alternative to protectionism, but also to the angry populism and pursuit of political division that animate the current occupant of the White House.

American Democracy on Slow Boil

Last week I promised a post about investments in job training and apprenticeships as an alternative to protectionism, with plans to draw on the example of Germany. With apologies for delaying that post, this past week’s political events compel me to address the fraught state of American democracy.

bring-to-boil.jpgThe catalyst for this shift was my experience listening to news on my drive home from work this Wednesday evening.

Acutely aware of the disastrous state of American politics, the tenor of an NPR segment clarified for me the urgency of addressing the danger at hand. NPR does a commendable job of pursuing political neutrality in a media environment rife with partisan outlets catering to motivated audiences in a deeply divided polity. But is “political neutrality” appropriate in the face of a sustained assault on democratic institutions? Is it “politically neutral” to treat abnormal politics as a version of normality?

In this instance, the “Week in Politics” segment of All Things Considered was reporting on the relentless staff changes in the administration and the rumors of more to come.

The show has increasingly inclined toward playing clips of the current occupant of the White House and his Press Secretary, allowing those voices to speak for themselves. Fair enough.

But informed listeners know with certainty that in hearing these clips they are listening to falsehoods. What happens next on the show – the response to lies — is therefore of great consequence.

After airing a statement from the Press Secretary that was entirely and obviously evasive in response to a direct question, host Ari Shapiro, a skilled professional whom I admire, asked the guest, Mary Katharine Ham, senior writer at The Federalist, the following: “Mary Katharine, how do you think this turmoil affects President Trump’s agenda?”

The response: “Look; the Trump White House does operate differently just as the Trump Organization operates differently. This is how he likes to manage, and I’m not sure it’s that effective.”

There are two fundamental and worrisome problems raised by this exchange. First, the question Shapiro asks implies that the prime victim of the White House pandemonium is its own policy agenda.

Shouldn’t we instead be asking about the consequences of bedlam for American governance, democracy and institutions? By many accounts, in fact, chaos IS the agenda of this administration.

Second, the response from Mary Katharine Ham – not surprising given The Federalist’s libertarian political leanings – treats mayhem as a legitimate management style, albeit one of questionable effectiveness. Boston Herald reporter Kimberly Atkins added of the chaotic management of the White House occupant, “it is how he enjoys it. I think he is fine with this setup even if the people around him are kind of flailing in this chaos.”

We know that executive appointees serve “at the pleasure of the president;” here we have a perversion of this theme in which the executive branch is for the pleasure of the president.

As for the “Week in Politics” program, in pursuing this discussion, NPR becomes a participant in our national reality show, a sort of Talking Dead of the American political scene; a chatty show about the show. The challenge to democratic institutions is urgent, and we need something more from NPR.

In this instance the program, as with much (certainly not all) of the contemporary media, inadvertently participates in the degradation of American democracy by analyzing the disasters of the current administration from within its internal logic. Once we step into this logic, “It’s what the president likes” and “It’s what he said he would do” become viable analyses of behavior that imposes tremendous damage on national unity, policy coherence and the global standing of the United States.

Only by stepping outside the administration’s aberrant logic can we foster the political accountability required for a thriving democratic society.

In a 2017 article in the journal Political Science Quarterlyauthors Kathleen Hall Jamieson and Doron Taussig offer an analysis of the “rhetorical signature” of the current occupant of the White House. They find that this style includes “seeming spontaneity laced with Manichean, evidence-flouting, accountability-dodging, and institution-disdaining claims.”

Additionally, the signature “dismisses uncongenial evidence from institutionalized custodians of knowledge” and “rejects conventional standards of accountability.” Finally, the rhetorical signature “questions the integrity of democratic institutions, some of which” (electoral system, courts, the media) “can hold a president accountable for abuse of power or misuse of evidence . . .”

If we normalize these rhetorical and management styles, we subvert democratic accountability and institutional integrity.

As Yale historian Tim Snyder reminds us in On Tyrannyhis caution to contemporary democracies from the lessons of history, “Institutions do not protect themselves. They fall one after another unless each is defended from the beginning.”

Many citizens who are deeply critical of the current administration – and worried about the direction of the American polity – await the November 2018 Congressional elections and express hope that this will be the moment to put American democracy back on course. Is this patience in awaiting the electoral means to check an administration with accelerating authoritarian tendencies an indicator of the strength of American democracy –or of its fragility?

We know that there have been efforts by the current administration to limit democratic participation, such as the recently disbanded electoral commission headed by Kansas Secretary of State Kris Kobach, which began from the premise that the U.S. electoral system is plagued by voter fraud.

Although faced with numerous legal challenges and harboring claims that have not stood up well to scrutiny in a recent federal court hearing of a challenge to a 2013 Kansas proof of citizenship voting law, the work of the commission may well be picked up by other components of the current administration, such as the Department of Homeland Security.

American democracy is on slow boil; the result may be democratic evaporation.

Raising the alarm in On Tyranny, Tim Snyder points out that Russians who voted in 1990 “did not think that this would be the last free and fair election in their country’s history, which (thus far) it has been. Any election can be the last . . . ”

Indeed, asserting that “it can’t happen here,” Snyder warns regarding the failing of democracy, “is the first step toward disaster.”

The Folly of Brexit Reveals the Folly of “America First”

I have written in past weeks about the ways in which the current U.S. administration is investing in societal division as a political strategy.

Aluminum and steel tariffs are a prime example, for tariffs unleash a zero-sum dynamic both within U.S. society and between the U.S. and its global partners. This stands in contrast to the sort of positive-sum process potentially generated by investment in job training and apprenticeships.  This will be the subject of next week’s post.

But first, I want to consider a prior point about deep divisions in contemporary society and the paths by which capitalist democracies can – and should not — navigate these tensions. Recent analyses of divisions in capitalist democracies emphasize the tension between those who’ve gained most and those who’ve been hurt by the advance of globalization.

There is substantial evidence for this cleavage in the U.S. as well as in the UK, where characteristics of those supporting a British exit from the European Union — who tend to be older, less educated and more opposed to immigration and multiculturalism than those who voted to remain in the EU — overlap in significant ways with supporters of the current occupant of the White House.

The “country name first” response to globalization (as in “America first” or “Britain first”), while politically expedient, is both socially divisive and ultimately damaging to national prosperity. Exit from the EU has taken the UK down such a path, and the contradictions of Brexit become more evident over time as the British government struggles to control the damage.

British Prime Minister Theresa May gave a major policy speech last week outlining Britain’s conception of its future economic relationship with the European Union. What the speech ironically revealed is that British exit – much like the implementation of tariffs in the U.S. – is a narrow political project that can only bring damage to the national economy and the country’s place in the world.

In her speech, Theresa May valiantly endeavored to reconcile a “people’s exit” with a prosperous and globally engaged future for the UK. Unfortunately, the speech revealed all too starkly that these ends are entirely irreconcilable.

 

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May began her speech with a nod to populism: the entire project is about the British people, not the “privileged few.” The implication, of course, is that European integration is an elite project whose benefits accrue to a narrow element of society.

 

There are elements of truth to this claim. The tragedy is that British policy makers, rather than tackling issues of inequality, have pursued a path of division and destruction in exit from the EU. Without doubt, the country will be considerably worse off following exit, and of course poorer, more vulnerable segments of the population will bear the costs of reduced economic opportunity and sharply reduced fiscal resources.

The same is unquestionably true in the U.S., where an “America first” policy course can only redound to the detriment of the very people those who hew this path cynically claim to defend.

 

What also became evident in Theresa May’s “Mansion House” speech is the deep contradiction between the UK’s struggle to extricate itself from the EU with minimal economic damage and the objective of a post-exit UK that is “modern, open, outward-looking, tolerant . . .”

May advances proposals that commit the UK to essentially identical regulations to the EU in order to minimize barriers between the British and EU markets – while maintaining the fiction that the UK will nonetheless be sovereign in devising its own regulatory environment.

At one point that should embarrass the politicians responsible for Brexit, the Prime Minister notes that “businesses who export to the EU tell us that it is strongly in their interest to have a single set of regulatory standards that mean they can sell into the UK and EU markets.” This statement of a reality well understood by proponents of integration unwittingly gives the lie to longstanding propaganda that “barmy Brussels bureaucrats” are responsible for excessive EU regulation imposed on UK markets.

The unfolding process of British exit from the EU illuminates the folly of a hollow strategy of “taking back control” in a globalized world more clearly each day. The folly and danger of “America First” grows equally more apparent.

The Dangerous Assumption that Economic Status Equals Merit

During the past few weeks I have examined and critiqued recent U.S. government policies of maldistributed tax cuts and proposed limits on food stamp benefits. 

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These policy changes, I have argued, emerge from the fundamental — and deeply flawed — assumption that economic stratification is based on merit.

Advocates of much greater tax cuts for the wealthy insist higher taxes “punish” success and destroy incentives for hard work and wealth creation; programs like SNAP that provide marginal assistance for the poor discourage effort among the able-bodied.

What does the evidence tell us about economic stratification and merit?

A positive relationship between economic standing and merit – the belief that someone born into any circumstances can succeed economically through striving and cunning — is supposedly the bedrock of American social cohesion. During the past decade doubt about this relationship has risen sharply, especially among the young.

A majority of Americans now expect the next generation to be worse off, though such pessimism is shared by other wealthy democracies.

Deepening inequality, along with this fraying of belief in American social mobility, helps explain the divisive and chaotic politics recently unleashed in the U.S. and in other societies like the UK, where a deep social divide continues to fuel bitterness over British exit from the European Union.

Studies of intergenerational income mobility typically place the United States low in international comparison. Along with the UK, in the U.S. the correlation between parental income and the income position of the next generation is quite high.

The U.S. position contrasts with a group of high mobility wealthy countries (Canada, Finland, Norway, Denmark), and those in a middle group (Germany, France).

Conservative analysts typically dismiss these findings. Among other things, they argue that comparing dynamics between income categories – typically measured in slices each containing one-fifth of earners, or “quintiles” – is a poor measure of mobility. Instead, we should focus on absolute mobility, the trend of income within each quintile. In other words, the relevant question is whether people are becoming better off in an absolute sense rather than relative to others. Conservative commentators tend to portray this as “a more complete opportunity story”.

In fact, such a measure represents the lowest possible threshold for any concept of mobility — ultimately it is not really a measure of mobility at all – so it is hardly a “more complete” story, only a more convenient one.

Let’s nonetheless give the benefit of the doubt to this perspective and examine claims made by proponents of a focus on “absolute mobility.” The conservative social welfare theorist Neil Gilbert objects that attention to upward social mobility neglects the point that this is simultaneously a demand for downward social mobility, since a movement of some earners into a higher income quintile means others must move out.  However, unless we assume the existing distribution is a product of pure merit, this displacement of high earners by those with greater merit is precisely what we should want to see.

Citing a definitive 2014 study by Harvard and Berkeley economists as well as analysts from the U.S. Treasury Department, Gilbert notes that “the findings showed no decline in the rate of social mobility among children born in the U.S. over the last 40 years.” Ironically, while this is technically accurate, the authors of the study themselves emphasize an entirely different point: the absence of a change in intergenerational mobility between income quintiles, coupled with substantial increases in the degree of inequality between quintiles, amplifies the consequences of a low level of income mobility between generations. (Or, as the authors put it, the “birth lottery” effect increases.)

Furthermore, like other conservative social theorists, Gilbert engages in slight-of-hand with the implications of the findings: while admitting that the odds of someone born into the bottom fifth of the income distribution making it into the top fifth, at less than 9%, are low, he underscores that the range of income has grown in the United States. This means the distance the lower income person must travel to reach the top quintile has increased, and is greater for the U.S. than for most other societies. Precisely.

Related to this point, and damning for the entire “absolute mobility” argument generally, this graph from the U.S. Census Bureau reveals dramatically that income gains have accrued much more rapidly at the top of the distribution than toward the middle or the bottom:

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But how much do we really know about the extent to which the income distribution reflects effort and merit? A recent academic study of intergenerational income mobility in the U.S., UK and Sweden published in the journal Social Forces addresses this question.

The study reveals that parental income determines about 60% of the income status of the next generation in the U.S. The figure for the UK is 55%, and for Sweden 33%. The authors of the study seek to identify the extent to which merit contributes (or doesn’t) to the intergenerational reproduction of economic status. To do so, they use measures of educational attainment and performance on cognitive tests to control for education level and cognitive ability.

The authors find that for the U.S., nearly three-fifths (57%) of the rate at which inequality is reproduced cannot be explained by educational attainment and cognitive ability. Put differently, even at constant levels of educational attainment, the accident of birth is a powerful predictor of where one winds up in the income distribution.

Policies that implicitly embrace a direct correlation between wealth and merit, then, seem gravely misguided.