Cheap Labor or ‘Bust?
Around Labor Day in 2004, a young State Senator drove south from his big city district, and arrived in a blue-collar town in southern Illinois called Galesburg. It was the home of Maytag, the maker of many of the refrigerators stocked in American homes. The factory was on the cusp of shutting down. Why? The labor costs had grown too high for a company that had grown more concerned with quarterly reports than customer satisfaction and the livelihood of its workers. It was a shame they had to leave Illinois, but it was simply justified as the cost of doing business in this new, very flat world.
This young State Senator just so happened to be Barack Obama, and he had a few last fighting words to say, before management dealt the final blow—
“I want to remind all of you that NAFTA and other trade policies have failed all of us. They have failed Americans miserably. We need your help. We are Galesburg, not Maytag, Butler or GAtes. People make this community, not the businessess. The workers of Local 2063 made this Maytag plant what it was, not the CEO, the shareholders, or the Board of Diretors. Your responsibility is to serve us.”
The crowd enthusiastically applauded as Obama left the podium.
Only weeks earlier in Boston at the Democratic National Convention, he shared his inspiring journey that brought life to a party still reeling from 2000, and pessimistic about their chances in 2004 (rightfully so). Several stanzas into his speech that night, he tied the frustrations and resilience of Americans with aspirations of how government has ‘more work to do,”
“For the workers I met in Galesburg, Illinois, who are losing their union jobs at the Maytag plant that’s moving to Mexico, and now they’re having to compete with their own children for jobs that pay 7 bucks an hour..” He goes on to say, “No, people don’t expect government to solve all their problems. But they sense, deep in their bones, that with just a change in priorities, we can make sure that every child in America has a decent shot at life, and that the doors of opportunity remain open to all. They know we can do better.”
In Chad Broughton’s informative and timely new book, Boom, Bust and Exodus, he shows the human cost of two communities affected by companies and big government colluding with each other to make policy that only works for a select few. While the job loss numbers can be difficult to process in the abstract, Broughton follows a few families in both communities- Illinois and the Mexican factory towns (maquiladoras)- to give life to how government policy could do a lot worse, but it definitely did not do better.
In 1994, under a Democratic President, the North American Free Trade Agreement ( NAFTA) was signed. Labor and progressive groups lobbied hard against an agreement that they rightly predicted would make it too easy for large companies to chase cheap labor and lax regulation south of the border. From 1994 to the summer of 2004, the US lost millions of manufacturing jobs, while Mexico gained millions. Obama’s speech at the DNC was most likely referencing this policy that rather than ‘make sure every child in America had a decent shot at life, and that the doors of opportunity remain open to all,” actually helped make it easier for factories to leave.
For the small few who pocketed from these drastic economic changes, there is a cringe-worthy sentiment that seems to be shared. They claim to be free-market businessmen and entrepreneurs who are just creating a product that consumers want without the visible hand of government influencing their wealth. This couldn’t be further from the truth. They point to Adam Smith’s Invisible Hand as their influence, but instead they cozy up to politicians to influence major policy that has huge effects on their business. Without these sweeping policy changes, they may still exist, but they most likely would not become rich.
One example that Broughton uses to tell this story is Mike Allen. Allen began his adult life in the priesthood, but soon left to become the Economic Development Director of a Texas border town and its cross border cousin, Reynosa. In the ‘70s and ‘80s, it was merely another gritty Mexican city, with an underutilized workforce. But with Allen’s help, the mayor of Reynosa paved a way for the American multinationals to build large-scale factories. Even better for the companies margins, they could get away with paying Mexican workers 90% less than the going rate for United States labor. The build up of the factories or maquiladoras ( a miller processing other people’s grain) was known as the Border Industrialization Program and allowed the big conglomerates to ‘import parts and raw materials duty-free,” and then assemble them using Mexico’s highly discounted labor force. This was the blueprint for NAFTA and was the ultimate score for a business worrying solely about their bottom line and looking to improve profit margins in their quarterly reports. If strikes happened, Allen would make a phone call or two threatening Reynosa leaders that he would take out Wall Street Journal ads showcasing Reynosa inability to control its workforce, thus drying up foreign investment.
Strikes were squashed with violence eerily similar to New England textile strikes a century earlier. The hand of government and corrupted influence was showing its mighty, and unfortunately unjust hand.
Allen and his development corporation pushed further to support NAFTA, which was gaining momentum in Washington and would increase economic development along the Mexican border towns. This was not an ordinary bill from the Democrats. Since the 1970s, white working class voters had turned their backs on the party that had given them collective bargaining a generation before. A trade bill like NAFTA that made it even easier for a company to quickly leave diminished any last bargaining power private unions could muster.
How could anyone bargain when it was too easy to open up a factory where labor costs were practically free?
Allen and other supporters enlisted America’s most powerful, including Democratic Vice President candidate, Lloyd Bentsen, who lobbied his Democratic colleagues for a support that leaned right. Bentsen, known best for his barbs with Dan Quayle had made his money in the insurance industry, and teamed up with Allen and others to push for Democratic support. As predicted by many, the effects of NAFTA have been devastating for American manufacturing.
To Broughton’s credit, which makes the reading more engaging, he follows the lead of Barbara Ehrenreich in Nickel and Dimed or more recently George Packer in The Unwinding to capture the Dickensian aspect of globalization.
More than ten years removed from his speech in both Boston and Galesburg, the young state senator is now our President with less than two years left of his Presidency. During his second to last State of the Union, the President called for passing the Trans-Pacific-Partnership (TPP), a legislation that is eerily similar to NAFTA, which begs the question, what would the young, state senator Barack Obama say?
Nathan Rothstein helped start Project Repat in 2012 to bring back textile jobs back to the USA by upcycling customers t-shirts into t-shirt quilts. He has has spent a lot of time in factories over the past few years.