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1worker1vote is building a national network of hybrid, shared ownership, regional and municipal ecosystems starting with unionized worker-owned cooperative businesses to overcome structural inequalities of opportunity, mobility, and income. Building pathways out of poverty leading to pathways toward prosperity.

There Are No Free Markets with Invisible Hands

by Brian Lombardozzi & Michael A. Peck

Since the 1970s, America has counterbalanced high per capita GDP with increasingly unequal income distribution. “Winners-take-all” results produced stagnant wages, accelerated redlining, declining mobility, increased economic class divisions and racial tensions at levels not experienced since the Great Depression.   

From ride hailing and sharing apps to personal data algorithms, hegemonic social media cartels (i.e. FANG – Facebook, Amazon, Netflix, Google) artistically, profitably and misleadingly manipulate technology innovation masquerading as societal liberation. Popularized by Joseph Schumpeter in 1942, pile-on academic and financial elites hide behind a “creative destruction” catchphrase license to outsource, offshore and shutter other people’s livelihoods and prioritize exterritorial shareholders over local stakeholders. Taking that cue, copycat industrial and political enablers normalize solidarity culture uprooting including sustained attacks on unions, triangulating underserved economic classes and cruelly shaming recent immigrant waves.   

In this unraveling societal dystopia, global trade is the sick canary for America’s deeply uneven transition from coal mines to something comparable that offers rising middle-class employment in opportunity disadvantaged regions such as Appalachia. Back to the future 30 years later, “Divine Left” and “Corporatist Right” blanket rejections of the 1988 Richard Gephardt presidential campaign’s fair trade push against Japan and South Korea eerily echo today’s responses to the Trump Administration’s recent decision to place tariffs on steel and aluminum imports, this time mostly against China.   

The fact is that manufacturing America has already been in onesided trade wars for decades, betrayed time and again by both major political parties who share the blame for not doing enough to protect the jobs in certain industries in the United States that are being lost to unfair competition. In 2011, half of the world’s 46 top steel companies were state-owned, and these state-owned companies accounted for 38 percent of global production. Those governments provide a wide array of subsidies to their steel industries, including grants, tax breaks, subsidized loans and debt forgiveness, and the provision of inputs at below market rates, direct equity infusions leading to “uneconomic additions to capacity”—increases in capacity that don’t make economic sense because they are not driven by free market demand.

State-owned manufacturers undercut prices that U.S. private businesses can reasonably offer, and free market competition has nothing to do with results. The average unit value of imported steel declined $259 per ton (23.1 percent) between 2011 and January–February 2014. While U.S. steel producers filed 40 antidumping and countervailing duty petitions in 2013 and the first two months of 2014, they still compete against these state-owned firms in procurement markets. When these procurement markets are not governed by Buy America preferences with an appropriate unreasonable cost standard and require awards to go to the lowest bidder, most often U.S manufacturers lose bids.

As a well-run business actor in a supposed free market economy regulated by the invisible hand of level playing field supply and demand dynamics, going under may be fair and part of reoccurring market cycles. When competition gets subsidized by distorted inputs or is simply bankrolled by the government of a foreign nation to undercut market prices, driving them to points so low it forces U.S. companies who operate under real market conditions to go out of business, then that’s cheating, and tariffs exist to combat this practice.

The dearth of global free markets regulated by invisible supply and demand “enabling hands” is nothing new. At the 2016 G20 summit during the Obama Administration, China admitted to producing too much steel, and repeatedly pledged to reduce the amount of steel it makes. The reality is that China has repeatedly broken those promises; its steel production even increased in 2016.  

In the United States, tens of thousands of steel workers face layoffs and dozens of facilities are closed because of unfairly traded steel imports. On the aluminum front, there’s just five aluminum smelters left in the United States, and only one that can produce high purity aluminum needed for fighter jets like the F-35. During the first 18 months of the Trump Administration, American steel imports spiked by 15.5 percent as foreign steel makers rushed in products ahead of tariffs that have yet to materialize. Roughly 13,500 Americans have been laid-off and a new round of major steel mills across the country have closed because of an unprecedented surge in subsidized steel imports from countries starting with China.

Tariffs serve as emergency room triage on domestic industries that have been injured by a massively distorted steel market, warped by state-led competitors. We should be under no illusion that tariffs are a silver bullet to solving this problem on a permanent basis. Policy makers must still boost domestic demand for manufactured products, prevent currency manipulation, and contain Chinese mercantilism, particularly on intellectual property theft and other market barriers like mandatory partnerships and forced technology transfers.

A longer term structural solution entails rebooting America’s historic civic ownership aspiration. Thomas Piketty’s “Capital in the Twenty-First Century” pulled back the curtain on rising inequality throughout America and its pernicious effects on social cohesion, competitiveness and democracy. But while inequality facts on the ground and root causes have slowly gained mainstream, bipartisan acceptance; there is no overriding ideological consensus on how to restructure both society and culture between the extremes of “I built it all myself” and “it takes a village.”

Workplace ownership as a founding American impulse deserves a much closer and more enlightened look. Knocking down racial, economic class and inherited-merit opportunity silos means rebuilding America into a more widened and broadened stakeholder economy in ways that are neither top-down, distributive, protectionist, or elitist, and also neither big-government dependent or locked into low-wage commercial sectors. While comprehensive and inclusive worker and employee ownership policies differ in impact based on economic class and urban or rural geographic distinctions, reimagined cultural solidarity within a reunited country can be bipartisan, truly free market-based and socio-culturally empowering for all.

Today’s “Aberration America” reels from hacked elections and personal data banks, from exclusive trade agreements that are inadequately monitored and enforced, and from a self-polarizing society for whom “creative reconstruction” is an oxymoron. America can do better than this. Instead of eagerly rushing to engage in the next domestic socioeconomic civil war, time better spent would reinvest in ourselves from the bottom up to leverage the inevitable rising, inclusive, massive differential of a shared ownership commons. We can start by treating others as we would treat ourselves and dramatically up our game on both counts.

Brian Lombardozzi heads up state government relations on behalf of the Alliance for American Manufacturing.  Michael A. Peck is the executive director and a co-founder of 1worker1vote.org.

 

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