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america is turing into a third world country

September 29, 2009

Last Friday, economist Paul Krugman was a guest on Real Time with Bill Maher. During the program, he said that, “On bad mornings I wake up and think that we are turning into a Latin American country,” and then went on to basically explain how in some ways we’re turning into a third world country.

While I think the term “third world” is rather out-dated, what he said reminds me of a conversation I had with a friend of mine back in May. We were discussing GM, Chrysler and the offshoring of our manufacturing, and I mentioned that the way I see it:

[W]ithout greater government involvement or worker participation in the decision-making process, we’re never going to keep the jobs we still have or get the ones we lost back. Unless, of course, the U.S., becomes more like a developing nation than a developed one, with high rates of unemployment, and the jobs get shipped back here due to the massive pool of cheap labour and lower taxes, which will mean things like our quality of life and social safety nets (e.g., Medicaid and Medicare, Social Security, unemployment etc.) will take even more of a beating. From my vantage point, the economic future of the U.S. doesn’t look pretty.

I think the fact that Ford is building another new assembly plant in China in order to compete with GM helps to illustrate my point. As I said in an earlier part of the same conversation:

One of the main problems I see is the fact that U.S. based multinational corporations are beyond borders. They can pack up and ship their capital and resources, like manufacturing and tech support, to almost anywhere in the world with cheaper wages and and lower taxes while still technically being headquartered in the U.S. One thing we need to do is to make this more difficult, otherwise there won’t be anything left to outsource. It may be good for a company’s profit margins, but it is devastating to our economy as a whole.

But I don’t think that government ownership via stocks, such as in the case of GM, will stop outsourcing. In fact, it hasn’t. When I said “greater government involvement,” I was referring to things like tariffs, stricter trade policies and outright nationalization, not simply ownership of stock in a given company.

The problem is that, when owning stocks, the main focus is on returns, so whatever makes a profit is seen as a good thing from that point of view. And if a company can make more profit by offshoring its manufacturing, all the better. The stockholders benefit regardless of where those manufacturing jobs are located, i.e., there’s no real incentive for stockholders to keep them here, and even less so if it means a better return on their investment.

The way I see it, giving workers direct control and ownership is the best way to ensure that manufacturing and other product based jobs stay here, regardless of the industry, because it’s in their best interest. And while people often assume that workers can’t make good decision because they’re too dumb, I disagree. Management can be just as dumb, or even dumber. Take GM, for example.

In 1990, GM designed an electric car. In 1996, they started mass-production and began leasing them in California. But the bigwigs at the top decided that it wasn’t profitable enough, and since they could make more money with SUVs, they scrapped the car. Literally.

I doubt the engineers who designed the car wanted to see their design sent to the scrapyard and crushed. I also doubt that the people who worked hard assembling them wanted to see their plants shut down and the cars scrapped either. Of course, there’s no guarantee that the workers themselves wouldn’t have made the same decision, but I don’t think they would’ve killed the electric car so easily. And look where they’re at now.

Beyond that, I think stricter trade policies need to be enacted and enforced, and the outright nationalization of certain industries if worse comes to worse, because what’s the alternative? Letting all of our manufacturing jobs get outsourced and replaced with ones at Walmart?

I’m no economist, but I have agree with Krugman that we’re not in good shape. From my vantage point, the economic future of the U.S. still doesn’t look pretty.

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