How To End Outsourcing

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One of the many statements by President Trump on trade.

Trade, trade, trade. The only thing that President Trump has consistently raised as often as his racist hatred of immigrants and imperialist threats against Muslims is trade. The appeal of this invocation of trade is the idea that the trade deals of the past few decades (most infamously NAFTA) are responsible for the mass outsourcing of primarily working class jobs. It is an argument that does not enjoy the support of economic orthodoxy which stubbornly holds to its free trade dogma, but has broad political support outside of it. As Dean Baker points out, the increase of the trade deficit is directly correlated to the loss of manufacturing jobs.manu-empl

Where the Left and Right differ when it comes to opposition to globalization is what alternative should be constructed in its place. I picked that particular tweet from President Trump above because it is a bit more honest about his particular brand of anti-globalization. Neoliberal orthodoxy has, with varying degrees of success, portrayed itself not only as the “correct” perspective but the “correct” capitalism. This propaganda obfuscates a historical reality that globalized free trade is only one iteration of capitalism and only became the dominant one fairly recently.

And given President Trump’s white nationalist politics as a whole, it is not surprising that his preferred implementation of capitalism is a nationalist one. Despite what libertarians fantasize, the market is not an independent entity from the state – and further, no capitalist regardless of his politics is above utilizing the state to obtain a competitive advantage. Those who simplify ‘protectionism’ as just bad economics completely miss that for plenty of firms it is very good economics.

So what does this have to do with manufacturing jobs? The reality is that President Trump’s policies are only a more nationalist version of the standard ‘trickle-down’ economics of the Republican Party. Once they can end the “attack on America’s business” then surely they will return to the investments in domestic labor they once made out of either economic rationale, fear, or gratitude. As I myself and many others have pointed out, companies are far more likely to use that extra cash to repurchase stock. There may be a few sacrificial lambs along the way, but punishing companies for not conforming to US nationalism does little to nothing to guarantee that manufacturing jobs will return.

So, as the liberal pundits from Paul Krugman to Tim Wise condescendingly lecture Appalachia, are the manufacturing jobs gone for good and working class people need to resign to other options like “adding fiber”? The truth is that there is still plenty of need for manufacturing from extracting raw materials to assembling commodities, and while automation’s pace is increasing we are still far away from blue-collar work being obsolete. The US has become a service economy not because it has transcended the need for manufacturing but rather because manufacturing is now mostly outsourced.

The more progressive liberals (think Dean Baker, Robert Reich, Bernie Sanders) are not actually against globalized trade but rather are against it being constructed in ways that increase inequality. Their alternatives generally consist of a weak dollar policy and extending labor regulations and standards in the way these agreements did with a lot of white-collar professions like medicine. The argument is simple: if companies do not get the multitude of deregulation and wage savings from outsourcing, then they will not outsource even if there are few barriers on trade.

A quick note on strong vs. weak dollar policy. The mainstream media, as it often does, demonstrated their own ignorance when it mocked President Trump for being confused about whether to support a strong or weak dollar policy. Besides the bizarre phenomenon of watching people laugh about someone not understanding something they clearly did not understand themselves, most economists are also unsure which would more fit into President Trump’s white nationalist agenda. While strong dollar policy was a Clintonian measure to open up the US to foreign investment, it also plays a key role in maintaining US dominance of the economic system, an important point of leverage for President Trump to bully other nations into the trade deals he wants. This all goes to show that generally when it comes to economics, and especially monetary policy, you cannot really trust anything the mainstream media says.

Anyways, while the progressive ideas of trade would be better (and far less imperialist) than any that have been implemented so far, ultimately they would not be able to prevent the precarity of US manufacturing jobs. The notion of outsourcing as purely economic ignores the important role it has served in breaking up the power of the working class, often with the aid of the law. And that strategy is not limited to international outsourcing.

To provide just a small slice of this I want to take us through three cases: GMC and UAW, First National Maintenance Corporation v. NLRB, and United Food and Commercial Workers v. NLRB (Dubuque). The first case concerned GMC selling a shop to another firm without first bargaining with the union UAW. The NLRB’s finding was narrowly tailored to the issue of selling a shop but the ruling provided some devastating language:

[D]ecisions such as this, in which a significant investment or withdrawal of capital will affect the scope and ultimate direction of an enterprise, are matters essentially financial and managerial in nature. They thus lie at the very core of entrepreneurial control and are not the types of subjects which Congress intended to encompass within “rates of pay, wages, hours of employement, or other conditions of employment. ” Such managerial decisions ofttimes require secrecy as well as the freedom to act quickly and decisively. They also involve subject areas as to which the determinative financial and operational considerations are likely to be unfamiliar to the employees and their representatives…

This rationale should be bizarre even to the most orthodox of economists. The investment or withdrawal of capital cannot be simply separated from the labor costs of production, at least not in any economic model I have ever seen. The NLRB was probably aware of this but employed such contradictory reasoning anyways because it was necessary to avoid unions having any power in the ability to stop outsourcing and other neoliberal developments (note that this is a chronological progression and this first decision was in 1971).

Particularly they had to get around the National Labor Relations Act section 8(a)(5), which makes it an unfair labor practice to not bargain with the union on certain mandatory bargaining subjects. And as you may have guessed from the quote above, mandatory bargaining subjects consist of “rates of pay, wages, hours of employment, or other conditions of employment” [emphasis added]. That last category gave the NLRB considerable deference to force employers to the table with unions.

The Fibreboard case in particular gave unions some leverage to argue that various forms of subcontracting were mandatory bargaining subjects – a fairly reasonable argument, as by a basic definition subcontracting would appear to be an employment issue. But GMC and UAW was one of a number of opinions that started to chip away at Fibreboard until, in 1981, First National Maintenance gave it the death blow.

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Green Park Care Center in Brooklyn, the workplace at issue in First National Maintenance which I used to pass by every day on my way to the courts in Brooklyn.

First National Maintenance involved not the selling of a shop but the closing of one. While there was no direct evidence of it, the shop was closed right as the union had started an organizing drive there, and the phantom of anti-union animus haunts the decision made by the Supreme Court. Unable to demonstrate concretely the anti-union animus, the union’s only option was to argue that it was an unfair labor practice because they failed to bargain before the decision was made.Justice Blackmun begins by reciting the aim of the National Labor Relations Act to preserve “industrial peace” and quite expressly builds his argument on whether labor should have power:

Congress had no expectation that the elected union representative would become an equal partner in the running of the business enterprise in which the union’s members are employed. Despite the deliberate open-endedness of the statutory language, there is an undeniable limit to the subjects about which bargaining must take place…

Justice Blackmun divides management decisions into three categories: almost no relationship to employment (advertising, product design, etc.), a clear relationship to employment (layoffs, production quotas, etc.), and those with a direct impact on employment but focused only on economic profitability. That’s right, if you thought the paradoxical reasoning of the previous decision was inane, the Supreme Court actually doubled down on it.

The “purely economic reasons” of the firm were weighted against what benefits would actually be gained by the union’s participation in the decision. The Dubuque decision turned this into a test, where relocations were not mandatory bargaining subjects if (1) the kind of work varied significantly at the new location, (2) labor costs were not a factor in the decision, or (3) the union could not have offered concessions that could change the employer’s decision to relocate.

This nonsensical test has created a Don’t Ask Don’t Tell policy for whether firms can bust up unions by relocation or shutting down. Employer-side attorneys have become experts at steering their clients away from ever mentioning labor costs, despite that being the obvious reason for many of the relocations. And like in the First National Maintenance case, as long as the firm does not make some public statement like “I’d rather shut down this store than see it get unionized” then they have broad power to use relocation and shutdown to bust up unions.

I went over these cases for two reason: to show (1) that outsourcing is often and permissibly a tactic to cut short union activities and (2) that outsourcing is not just a problem of international trade but of labor relations domestically. This is especially true with the United States as the federalist system creates major differences in labor costs and union power from state-to-state. The conditions have gotten so bad in these states that countries from China to Sweden have begun to use them the way the US has used poor labor conditions in the Global South.

So while progressive trade policies could be a step towards more stable manufacturing employment, and less neo-colonialist exploitation of labor abroad, it will only succeed if the working class is able to achieve power of industrial decisions in their own backyard. President Obama’s endorsement of the TPP would have undermined this just as much as President Trump’s goal of nationwide right-to-work laws. The only hope for the blue-collar worker is a government that would guarantee employment for all and not base industrial decisions on busting up unions or making a quick profit. That government is socialism.

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