Hillary Clinton: Will Her Economic Policy Follow Global Best Practices?
Committed Democrats should advise Hillary Clinton and her team to break with the constrictions of traditional fights over taxes and debt.
Globally, the American model of laissez-faire capitalism and inter-country domination is breaking down and new models of growth are emerging and working with spectacular success.
(Writer’s note: A major concern for the election is that candidates provide a vision, something beyond tax cuts and safety cuts and balance sheets tilted toward defense. To challenge and create enlightened thinking about new economic models, here’s a critique of selected domestic and global regions and practices, pointing to both failures and successes. It cites rails (passenger, commuter, freight) as a heavy manufacturing and capital industry growing steadily throughout the world, with hundreds of sub-industries, that the US missed but still has time to pivot in, using its capital and high tech, heavy manufacturing skills. The illustrations show middle class housing in Botswana, solar panel arrays in Morocco and other eye opening economic activities and modern structures. Read in sections, published in “One Mule Drag” on Medium, it provides a variety of ways to comment, share and reblog. Leave your critique or questions. /wr)
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The heavy patina of the past covers the shine Hillary Clinton wants on her economic policy. In the reports of meetings and discussions with leading advisers are the dust tracks of the past, the well-worn routes of conventional paths: tax reform, training, deregulation, expanded safety nets, middle class crisis assistance, and numerical goals: goals for recovery, job, and wage rates — all old favorites of highly funded political campaigns, relying on the predictions and thinking of the freshwater-saltwater divide in academic economics, a divide also expressed in partisan politics and think tanks.
Oversimplifying, saltwater economics — those on both coasts, of whom Paul Krugman is a leading voice — want more government involvement in the recovery and in managing the economy for job creation and quality of life issues tied to money and income. Again, reducing complex approaches and issues to a core idea, freshwater economists — found in the interior of the country, grouped around the famed University of Chicago Economics department, once the home of Milton Friedman, and the University of Wisconsin, want less government intrusion in the economy and stand against government regulation of businesses and markets and government interventions of fiscal and monetary policy to improve economic conditions.
Because of the complexity of economic markets and the effects of thousands of economic and non-economic factors, from the rain in Brasil and effects of pests and disease on coffee, oranges, sugar and cattle grazing, to the snow in Boston slowing white collar output and the pace of regional financial decisions, to the influence of Saudi princes on crude oil prices, to the Federal Reserve’s market committee decisions about interest rates, followed in turn by the banks, to the spending approved in the national budget, economic and job growth is hard to fix.
It’s also hard to increase wages and income. If you opened a 401K retirement plan and invested in an indexed mutual fund at the beginning of Barack Obama’s first term ( January 2009), its value has doubled. But suppose you are in the half of America that doesn’t have a 401k plan? Your net worth is flat and your corporate or government pension may be at risk.
But low wages have brought a General Electric jet-engine plant to North Carolina, an French Airbus factory to Alabama and Boeing to Charleston and BMW to Greenville while leaving the workers wages in South Carolina’s Atlantic coast tourism stuck well below other regions. Wages are comparative and low high wages are different than low low wages; Boeing pays its South Carolina workers 86 cents of each dollar it pays its Washington workers, but coastal hospitality workers have no margin left for wages to fall.
The shift to the South of the aviation assembly industry is bigger than Boeing’s relocation or the attraction of low wages. The shift reveals hidden features that new models use to their advantage. The aerospace and automobiles industries both demand similar design and assembly skills and this helped the South build a strong supply of skilled, experienced engineers.
South Carolina started the trend with BMW and is now home to the largest BMW manufacturing complex outside Germany—4 million square feet of assembly facilities capable of building 240,000 vehicles a year. That $60,000 BMW X6 is made in South Carolina. Aviation was a natural next step.
But often success masks the failures. Clinton must not just shift the wealth but spread it to workers left on the margins; that failure is South Carolina’s true story.
Seldom does the economy, a multi-faceted system of money and desire, hit on all cylinders, providing high wages, job growth and mobility, and a outpouring of good and services that feel like the delights of an endless spring. If you got promoted and your neighbor got fired, who is right about the economy?
Sometimes, the evidence overwhelmingly shows that predictions of failure are wrong and void. Yet in American politics, the worst predictions of failure and social collapse are cases that enjoy grand success in other countries!
For example, Norway’s taxes for both individuals and corporation are a big percentage of its GDP—43.6 percent, ranking fifth among developed countries. But with more than 40 percent of its national economic output in taxes, Norway consistently has the largest budget surpluses among developed countries, with a broad safety net for health, education and employment; its national debt mainly provides liquidity and future investments for pension funds; its unemployment rate, between 3 and 3.7 percent, is among the top five countries globally with the lowest rates.
How can the high taxes and big social spending that Norway’s national government collects and spends produce and sustain full employment, economic growth, and low debt? Even with high taxes, there is little tax cheating and virtually no corruption.
Economics is bewildering for the same reason riding a bucking bronco is a losing gamble. When the bull breaks out of the shoot, to maintain balance, riders have to shift their weight in the opposite direction; if the bull goes left, the rider has to lean right. If the bull bucks up from the haunches, the rider has to lean back. To succeed, riders are working in opposition to the bull. Sometimes — but not always — the same is true in economics: the fix is opposite our intuition.
But politically moving in the opposite direction of intuition and common sense leaves candidates vulnerable to attacks. So a political economy emerges that is a half-fix. It protects certain areas even as it focuses on areas unlikely to change. It finds programs and structural weaknesses where points can be earned blaming problems on opponents. Candidates ignore the details of solutions while making big promises, as Mitt Romney did in 2012. Candidates’ positions are calculated to win votes and to not alienate financial supporters. Their positions seldom count when new problems challenge the old calculations.
So are we better off when Apple sells 34,000 iphones an hour (or 567 a minute!), as it did in a recent three month period, or when Apple’s cash on hand exceeds the entire economy value (the GDP), of more than individual 100 countries. Should a politician try to explain why Walmart, which earned $129 billion in its fiscal year 2014 — earning three times what Amazon, its nearest competitor, earned — as America’s largest private employer with 2.2 million workers can’t pay a living wage to its employees and once had a nasty habit of forcing employees to work off the clock?
So economics is counter-intuitive, made up of billions and billions of parts. In the US it is mainly partisan and insular; it faces off with its own traditions, and often government policy has little effect or wage or job growth for the middle class, except to provide limited benefits for the poor.
Economics is confusing. Stories about its causes and effects are easy to invent. For the cynical, fact checking doesn’t change many minds who see facts as excuses for fault. Often about the economy, people believe what they want to believe, with a faith set in stone.
So, as she devises her economic plan, what should Hillary do?
Clinton’s Economic Plan Should Correct the Mistakes of the Past
Hillary Clinton’s search for an economic policy seems to forget the phrase used to caution investors: “Past results are not indicators of future success.” The world of her husband’s administration is long gone.
The great goods of all national economies are now commodities; volume producers that produce wealth and flatline jobs and wages. Apple, Monsanto (80% of world corn seed), American Water Supply (the largest water utility), Pepsico, Google are diverse examples of commodity enterprises operating in global markets that increase capital wealth with little increase in jobs and wages; yet they are vital to global economic growth.
Clinton’s advisers don’t seem to get this paradox: the modern economy is built on essential or desired commodities that transfer wealth without the traditional means of adding value through labor and rarely expand workforces. In fact, work itself is becoming a commodity, priced by industry and region, in the same way as goods and services.
Clinton economic panels ignore this reality. Yet the US economy is deeply entwined with monopolies by companies and by global regions (China’s Pearl River zone, Foxconn; Vietnam, Indonesia, clothing; Brazil, agriculture; the big banks, cell, music and cable services; the US, et al.). Working around the economic margins through taxes and fees will not restructure a system designed to vacuum up cash and maintain rock-bottom wages while the private sector shifts social costs to government to be dismantled.
At the $9 an hour minimum wage rate US President Barack Obama proposed for 2015, the purchasing power of the minimum would only return to 1979 levels and would be one of the lowest among developing countries as a percentage of the national median wage, 20 points lower than France, for example. Twenty states have higher wage standards than the current federal minimum!
One of the best tools to boost for compensation, which offers benefits to workers and employers, is the bonus system. General Motors offered its union workers bonuses of one thousand dollars for each billion dollars in profits the company earned, a pegged and transparent bonus that helped improved productivity and retention.
Developing countries often legislate the payment of an additional month’s wages for workers at the end of the year, independent of profit or loss. Across the globe, employee ownership or employee stock ownership plans (ESOPs) are under-promoted and underutilizated, yet they tie wages and wealth for employees directly to a company’s growth and profits.
But more importantly, Clinton’s panels of economists overlook global best practices and opportunities. They agree and disagree about the wrong things! Models in several countries have successfully produced rapid growth and gains for the middle class in the last two decades (interrupted by the global recession) and continue to do so!
Above, Housing in Botswana’s capital city, Gaborone.
To cite four: China, Brazil, Botswana (per capita income, $17.1k (US), one of Africa’s highest), and Mexico. Each country has structural issues. Several confront major corruption and crime. But their political economies have increased wages and the size of the middle class by taking advantage of training and education, a variety of government partnerships, economic planning and global growth.
All four countries share two essential features: they modify social capital to invest heavily in health and education incentives, and they protect wages and investments for families by expanding safety nets —often through direct cash payments — and identifying markets through planning with high-paying, sustainable jobs.
Examples of successes and failures from these countries furnished by data and images present a scattered look at the question of how well the conventions of US policy are working, and the more important interrogative: are their better answers and models? The data and images are clues and context; pieces, if properly assembled, that solve the puzzle, but ask, secondarily, is the US falling further behind other countries in quality of life even as its corporate profits and capital markets set new records?
America loves its looking glass. But are others doing the impossible things?
How Brasil’s Safety Nets Help Eliminate Poverty
Global models for addressing poverty are found in all global corners, but two of the most successful, which now drive the global conversation, are in our neighborhood, yet silent in the American political discussion. One, the Bolsa Familia began in Brasil, expanded to Mexico, and is recommended as a practice by the UN. It is a simple, powerful formula for lifting families out of poverty. It breaks the cycle of internal and external barriers to mobilize and prepare a new generation to enter the self-supporting middle class.
So effective is the program Bolsa Familia, Brasil moved 31 million out of $2 a day poverty in a decade—into a middle class defined as being able to own a car, rent or buy housing, and cover all utility, food, and living costs.
How is it done? In Brasil, the program provides monthly cash payments to families, and they are continued based on one criteria: the successful educational progress of the family’s children. Each year, for a family to remain eligible, the children must advance in school.
This resets the family’s mission. It strengthens the family and focuses strongly on the future. The program teaches taking responsibility for outcomes, not handouts. Its investment prepares young adults to enter the workforce. It works! Bossa Familia costs Brasil less than one percent of GDP a year!
Isn't it time in America to discuss an approach with proven success, that will consolidate assistance in one package based on a criteria that breaks the poverty cycle and strengthens the value and skills of the next generation?
China’s America Card
Often thought of as uniformly paying low wages, China has tripled its middle class wages in the last fifteen years and is again pushing wages upward by raising regional minimums. Already larger than the entire US population, in the next fifteen years, its middle class will grow to 800 million people. A Brookings study suggests Pacific Asia, by 2030, will account for 59 percent of all middle class spending globally.
China is creating 159 millionaires a day. By 2020, Pacific Asia will be a $10 trillion import market.
China and the Asia Pacific region’s nations permit a large, off-the-books grey economy (estimated in China at 14 percent GDP). On the record, China focuses on education; the country has a 99.7 percent young adult literacy rate. The government and economy remove barriers to job advancement. China’s urban workers easily shift industries and change markets in order to advance.
China is not a workers paradise. Income between urban and rural regions shows enormous deficiencies; industrial working conditions are often dismal and lead to suicides; China’s growth has a human cost. Yet these criticisms invite opportunity and new solutions. Blame only locks bad ideas in place.
China’s Trade Success
The way you protect workers and improve their lives is by capturing markets, both supply and demand. China does this. America does not.
Expanding sales misses the future. Growth comes not only in sales but in new forms and new relations. Prices, wages, or quality together or alone (they matter but are not absolute) will not determine economic survival or growth.
It’s more likely to be strategy. Review the history of past components of the Dow, the US stock index. US Steel, Tennesse Iron, Coal and Railroad, Eastman Kodak, International Nickel, and Sears have been a part of its index; these companies excelled at prices, cost controls and quality, but failed at strategy. And right now, despite its currency issues, quality lag, and other faults, China has a better strategy than the US to attract nations and market players to close global deals.
When China’s Premier Li Keqiang visited President Obama in California on the Annenberg estate, Sunnyland, (a place the Annenbergs designed for important US global meetings), the two leaders held two days of talks.
However, the meetings for China were the final leg of a larger mission to Mexico, Costa Rico, and Trinidad and Tobago; following on the heels of the Premier’s visits to Germany, Switzerland, India, and Pakistan. He had already put together a number of global deals America’s media missed that were important backdrops.
For instance, China was finishing the details with Argentina for a $10 billion currency swap between central banks, giving Argentina direct access to vast credit-neutral reserves for trade, circumventing Argentina’s 24% inflation which would reduce or increase trade valuations for imports or exports by a fourth. It was a brilliant use of a central bank in foreign policy.
China is also Brasil’s biggest trading partner ($75.5 billion in total 2012 trade). But tensions exist as both countries seek to develop dominant roles in Africa’s energy producing countries and Brasil’s seeks to protect its manufacturing industries and intellectual property from incursions by China.
The downside of China’s Africa policies is seen in the gold mining region of Ghana, where residents from China’s Shanglin province purchased rights to mine. Violence and murders, along with accusations from Ghanaians of robbery and ill treatment, have brought co-operation to a halt. Ghana is planning to release 169 China nationals it is holding who are caught in the conflict between local chiefs, the central government, and the villagers. Many Chinese will lose on loans they received from the central government.
Days before meeting with President Obama, China offered Trinidad and Tobago $3.1 billion in concessionary loans, forging a strong tie to the island nation’s energy and mineral industry. China is planning a pledge of $1 billion for a island hospital and is committed to send 100 medical professionals to the region. Do US deals match disparate needs?
China focuses on long term production and financing agreements with countries for strategically important natural resources, from money and food to oil and rare earth.
As it advances its national economic production, expands markets, and increases wages, China repeats its formula. But to many in the US, China is a foil; they trash its success and even when it stumbles. The US is so busy and blinded by bluster, it does not take advantage of the openings left by China’s worst mistakes.
China’s strategy have features that clearly wouldn’t fit the US culture. Often, China sends workers abroad; significant numbers of Chinese workers are in Brasil, Ghana, Angola for example. But China outpaces the US in key global components of cooperation like credit to nations for work its companies are performing. Congress almost ended the US Export-Import Bank.
US politicians look at polls and avoid plans. The US creates international agreements, but lacks coordinated global strategy. The private sector and conservatives applaud the open market, but ignore its chaos and corruption. Many politicians and business persons see government as an adversary rather than a partner — a view contrary to the global vision of government’s role in expanding opportunities for national economies.
On taxes, Congress closes doors and opens loopholes. The current controlling party of Congress wants to tell the sick they are unaffordable, the illiterate they are flawed, and to describe the jobs in which workers are stuck for decades as entry-level. Their proclamation of progress has no plan or specific details. We are deluding ourselves. Especially if we think only the market can pick winners and losers.
American politicians have not learned successful models don’t cast blame. They don’t tilt policy to accelerate the flow of wealth to the rich while blaming others for the lack of virtues that supposedly cause income inequality and static wages.
Clinton should resist the temptation to engage those who speak of failures. Successful models promote growth. They engage stakeholders and establish activities — real organizations and businesses supported by advanced knowledge and research, highlighted and included in state and regional plans, aided by federal policies—that will innovate as markets expand.
This approach would give rebirth to America’s economy. The developing global models are driving micro (for families) and macro (for companies) growth and job expansion around the world (except Haiti, close to home). Here in the US, partisan calculations blot out the healthy benefits of using the models’ far-reaching reorganized, economic calculations.
Three Global Opportunities: Rails, Smartphone Operating Systems, Hydro and Solar Energy
Though it keeps expanding year over year, the US has abdicated the global rail market to China and Europe. It is a huge missed opportunity. Rail’s five main market segments (high-speed, mainline, freight, light rail, metro) include 150 or more sub-industries. Among them, electronics, safety, signaling, communications, maintenance, interiors, metallurgy, construction, power engines and assembly, and will have steady long-term growth, powered by the need to transport grain, coal, chemicals, vehicle assemblies, intermodal freight and urban ridership.
But rail’s sustained, high-wage jobs are ceded to Canada (Bombardier, which between 1999-2003, built 1,030 R142 cars for the New York City subway replacing American built “Redbirds”), Germany (Siemens), and France (Alstom), among others. In a global market approaching a trillion dollars annually, two-thirds of rail revenues remain directly accessible to the US — orders are open and awarded to the best bids from competing global suppliers! Yet, as an example missing the present and future, the US share of the rail car market is only 5% and is not using its superior financing, technical and research knowledge, experience with large-scale projects and skilled workforces to compete for dominant share.
China holds two of the top three positions as manufacturers and suppliers of rolling stock equipment, positioned to take advantage of new sales: in the next ten years, Europe will replace 10,300 locomotives, and Africa’s demand for rolling stock will double.
Consider these recent global rail projects:
- In Basque, a 172km high speed network in Spain between three regional capitals.
- In Algiers, Africa’s second metro system carries 300,000 daily riders underground on a 9.2km line, with ten stations.
- In Ankara, Turkey, three new lines, Kizilay-Cayyolu, 16 stations, 18km; Ulus-Kecioren, six stations, 7.9km; TBMM-Dikmen, five stations, 4.8km; 108 metro cars.
- In Warsaw, a 19km route with 19 stations.
- In Mexico City, North America’s second largest rapid transit, a new Gold Line, 24km with 18 stations.
- In Brazil: Bidding a 511km high-speed line (with 90 km of tunnels!) with contracts for tracks, stations and infrastructure.
- In Argentina, a 710km high-speed line, $4B.
- The Trans-Asian Railway, a 14,000km main rail link between Singapore and Istanbul, with connections to Europe and Africa.
US companies received none of these bids or subcontracts, missing out on 80,000 to 250,000 new jobs. Nor do they recognize a key value of rail is its stable long-term growth through flexible and sustained mobility.
With rails, entrepreneurial opportunities exist in adhesives, sealants and fixings; cables, hoses and connectors; paint and protective coatings; electrification, power supply, lighting, electromechanical systems and drives; fire safety, detection and suppression; computer hardware and software, controls and monitoring systems, door systems, gangway systems, public address and alarm systems; track engineering and construction, track maintenance and repair; fare collection and ticketing; noise, shock and vibration control; heating and cooling systems and compressors; and wash plants — leaving aside the importance of locomotive, rail and passenger car design.
Research for innovation include sensors, computers and digital communications to collect, process and disseminate information to improve the rail safety, security and operations. Research also includes alternative fuels and energy sources, reducing life-cycle costs while increasing reliability of equipment and infrastructure assets, and maintenance.
In fact, the US a a dominant manufacturer is absent from rail and many of its growing, sustained economic niches.
Apple dominates the high end of the smartphone market, but opportunities exist and are expanding for inexpensive models, a market in which India and China lead with no US competition. The Indian smartphone market for phones under $200 grew 186 per cent in the first six months of 2014. Other developing countries hold the same market potential.
Recently, Google announced Android One, a standard operating system intended to become the first choice for millions of new customers globally.
Google listed the minimum hardware requirements that the Android One operating system supports. Manufacturers may use these published specs and references to build low-cost smartphones of reliable quality. Google called Android One “a comprehensive solution to address the mobile computing needs of those in emerging markets.” It took the path of planning, partnerships and its technological knowledge to secure global growth. Android One phones are now in markets in India, Nepal, Indonesia, Sri Lanka, Bangladesh, the Philippines. Roll-out has been slower than expected; a good plan still requires skills in execution.
A third example of a large market niche US firms and government policy have overlooked because of a lack of coordinated planning, the absence of encouraged partnerships, and a failure to use global models to identify growing markets is African energy in hydro and solar power. China is currently building and financing over $9 billion in dams for African hydro power projects (some of which will destroy irreplaceable artifacts at ancient archeological sites). China is also the top investor in African solar power. Its government in June 2014 approved $100 million for solar projects in 40 African countries. China’s photovoltaic panels already light streets in Sudan, and power schools and hospitals. It donate $800,000 to Uganda to buy its solar street lamps.
Because of the expense of building traditional grids and the abundance of sun and minimal cloud cover across the continent, hydro and solar projects will expand rapidly for the long term. For example, Morocco is undertaking one of the world’s largest solar energy projects; its estimated cost is $9 billion, to add 2,000 MW of solar power to the country’s energy grid by 2020.
China designates solar energy as one of seven “strategic, emerging” industries it wants to dominate with products and financing. The US is debating food stamps, healthcare, and budget deficits — ignoring the need for discussions of “strategic, emerging” markets.
Reducing the debt and cutting social safety nets only transfer and shift the internal resources of the American economy. The shifts do not create incentives or focus on global models, markets and new relationships that are the new dynamics of prosperity and job growth.
Research Triangle, NC: A US Model of Success
The Pearl River economic zone in China and the Research Triangle Park in North Carolina are different examples of the model outlined in the beginning of this article; but both are regional ventures successfully merging talents, resources, and strategy to increase income and jobs. Pearl River and Research Triangle share a focus on partnerships and synergy, on extensive planning, on building skilled workforces, on expanding market share in a variety of categories, with government help. Pearl River manufactures 60% of the world’s toys, no accident! Pearl River’s nine-city region assembles and produces everything from sporting goods to auto parts and electronics and tech, along with farming and printing.
Research Triangle is home to 170 companies. Its new master plan, to be unfolded this year (2015), will attract $2 billion in new investments and create 100,000 new jobs!
Having outdistanced their peers, it’s time these models received serious attention. The global middle class is nearing one billion; we can learn much by looking at models and opportunities outside.
Senior Economist in the International Trade Department of The World Bank Thomas Farole sums up three considerations for successful zones:
- First, separate political support from political objectives in zone projects. Projects must be carefully designed based on clear strategic plans — the commercial case must be there.
- Second, the success of zones is entwined with the national economy and investment. Zones face challenges in linking to global markets and critical infrastructure — ports, roads, and power.
- Third, a clear and transparent legal and regulatory framework codifies and establishes the ‘rules of the game’ for all stakeholders. In special economic zones, the oversight agency responsible for developing, promoting, and regulating the zone must have the resources and independent authority to carry out its mandate.
Among the tales of success and woe, a few US businesses are recognizing the unique markets and models of global trade, among them, Jae Lee, who saw opportunity in China’s consumption of chopsticks, 50 billion per year, and China’s moratorium on domestic timber production. In 2011, he founded Georgia Chopsticks in Americus, Georgia, manufacturing chopsticks from local poplar and sweet gum trees that provided the right density the Chinese favor for chopsticks.
The only US maker of chopsticks, his plant operated 24 hours a day, six days a week. The plant turned two million chopsticks a daily, shipped to China, Japan, Korea, and the US. Then, abruptly, the plant closed. Creditor problems with Kansas investors were the apparent cause. And since April 2012, no one has stepped into a proven market.
Current speeches show it is almost impossible to dislodge deeply embedded economic myths that crowd out political discussions of innovation.
Committed Democrats should advise Hillary Clinton and her team to break with the constrictions of traditional fights over taxes and debt. Her team should propose planning, training and operating models that reorganize economic relationships to share prosperity between the wealthy and the workers, to find markets to achieve sustainable growth, emphasizing cooperation over competition, using American core skills to return the US to the world’s number one economic engine and the global leader in quality of life.
But right now, we not only don’t make the train, we are about to be left behind at the station, without a ticket to ride.
