The deep discontent over jobs and the economy among large sectors of the American electorate goes a long way to explain the strange nature of the US presidential race this year.
White, working-class voters who have been negatively affected by trade and technological change have rallied to Donald Trump, propelling him to the head of the Republican ticket. Their economic concerns were ignored by both parties for decades, giving rise to resentments and anxieties that are fertile ground for Trump’s nativist, populist appeals.
Meanwhile, dissatisfaction with the Democratic candidate Hillary Clinton runs high. Voters doubt her commitment to middle-class employment challenges given her husband’s and her past support for trade deals, and their connections to Wall Street, reflected in her high-priced speeches to financiers.
In fact, polls show that jobs and the economy are the top priority for as many as 44 percent of voters in this election. And yet there has been little serious examination of the candidates’ jobs plans in the campaign.
We went on a road trip through America’s heartland to see if their proposals can work, and if they address basic challenges facing American capitalism.
The journey started in Trumbull County, Ohio, which lost 49 percent of its manufacturing jobs between 2000 and 2010. Ohio is a battleground state that Trump must win, and Trumbull County has been targeted by both presidential campaigns.
In the past, the area was a Democratic bastion. Steel mills, auto parts manufacturing and car assembly at General Motors’ Lordstown factory provided the jobs that enabled thousands of blue-collar workers in the area to attain the American dream: a home, money to enjoy a holiday and put their children through school, and benefits for a secure retirement.
“It was the way we thought life was going to be forever,” says Mark Zigmont, who worked as the economic development coordinator for the county for more than 20 years.
Donald Trump is the kind of candidate that I think a lot of people have been waiting for
But auto parts manufacturing jobs in Trumbull County have dropped from 10,000 to 1,500 or fewer over the past 30 years. In the 2000s, thousands of jobs were lost at steel mills that closed and at GM’s Lordstown plant.
Today, according to Randy Law, the Republican county chairman, the support for his party’s presidential candidate is unprecedented. Forty percent of the people who come in requesting Trump signs to stick on their lawn “tell us they are Democrats,” Law says.
The essence of Trump’s jobs policy, getting tough on trade, resonates with voters who blame their economic problems on globalisation. He promises to levy hefty tariffs on American corporations who send their production offshore, and on Chinese imports.
“Donald Trump is the kind of candidate that I think a lot of people have been waiting for,” Law says. “Complete free trade just opens everything up. We have to look out for American interests.”
But Zigmont thinks it a mistake to blame the job losses only on globalisation. Auto parts jobs began moving to anti-union southern states in the 1970s, he points out, “so it had nothing to do with trade deals or anything like it, it was more to do with lower wages.”
And he is convinced that at least 50 percent of the lost jobs in the county are the result of technological advances. He doesn’t think getting tough on trade can bring the jobs back. “A lot of these jobs are gone,” he says.
Economist and author James Galbraith agrees. Galbraith, who teaches at the Lyndon B Johnson School of Public Affairs at the University of Texas, notes that out of about 152 million American jobs today, only about 8 percent are in manufacturing.
“It is not going to go back up to 30 percent, which it was in let’s say 1950,” he says.
Erecting barriers to foreign imports would drive up the price of goods for consumers. Meanwhile, the firms that ramped up domestic production to replace the imports “would go for the best available productive technology,” Galbraith argues, “involving fewer workers than the old manufacturing systems. And so the scope for actually achieving a jobs renaissance through the manufacturing sector isn’t as large as Trump’s trade strategy would appear to make it.”
But the strong support for Trump reveals that the costs of globalisation have become too great for millions of American workers and manufacturers.
Herb Schuler, the owner of General Extrusions, an Ohio-based company that molds aluminum parts for consumer and industrial parts, is not sure Trump would be able to pass the 45 percent across the board tariff on Chinese goods that he has proposed. But Schuler believes “something is appropriate.”
From 2000 to 2010, the Chinese were dumping aluminum parts into the US, and American extruders like Schuler were on the verge of being wiped out. Then the US government levied a 35 percent tariff on Chinese aluminum imports allowing the American industry to regain market share and jobs.
Hillary Clinton has said that she will appoint a chief trade prosecutor to bolster trade enforcement, and that her administration also “won’t hesitate to impose targeted tariffs”.
However, Chinese companies have tried to get around the aluminum tariff by shipping products into third countries like Malaysia. Schuler says “they’ll repackage them, put Malaysian tags and Malaysian bills of lading and then ship it into the United States because we won the sanctions against China not Malaysia.” Applying and enforcing tariffs, Schuler says, “is going to be a constant struggle, not just for our industry but the entire global trade order.”
The key point is this globalisation thing is not working as we were told and we've got to fix it.
According to Clyde Prestowitz, president of the Economic Strategy Institute, dealing with America’s $500bn annual trade deficit is going to require more than tariffs, but neither presidential candidate is offering the type of comprehensive approach needed to tackle it.
“The key point is this globalisation thing is not working as we were told and we’ve got to fix it,” Prestowitz argues, “and when you says it that way you’re raising not just trade, you’re raising investment, you’re raising technology flow, you’re raising the issue of what’s the purpose of the company.”
Prestowitz, who worked on trade negotiations in both Democratic and Republican administrations, says that trade agreements were sold as a way to increase American exports and jobs, but that their real purpose was to make China and Mexico safe for US corporate investment.
“These negotiations are strongly, strongly influenced by US corporations who all have large lobbying operations here in Washington,” Prestowitz says.
“The US trade representative has an outside advisory committee, and the vast majority of its members are CEOs of major global US companies. It has led to pressure on US negotiators to negotiate arrangements that facilitate the offshoring of US-based production.”
The terms of NAFTA, the North American Free Trade Agreement, make it easier for American companies such as the Carrier Corporation, a division of United Technologies, to send production offshore.
Last February, Carrier announced plans to shut down its Indianapolis plant, eliminating 1,400 jobs, and move the work to Mexico. Trump has attacked the plan repeatedly on the campaign trail, promising to levy a 35 percent tariff on the products of Carrier and other companies that shift production offshore.
We headed to Indianapolis to meet two Carrier workers who are losing their jobs, TJ Bray and Mark Smith. Smith, who is 55 years old, worries about maintaining the life he has had for the past 30 years. “The jobs that are left over” after outsourcing by American companies, he says, are “paying way less and way less benefits.”
Carrier is in the most profitable division of United Technologies, a company which made more than $7bn last year. The move to Mexico is saving the company $65m a year. Bray says it’s “all for more money, to maximise profits. When you go down there you pay less than $3 an hour probably with no benefits, no union, you have no regulations that you have to deal with.”
United Technologies declined our request for an interview, but its chief financial officer said the Carrier decision was necessary to increase shareholder value. According to economist William Lazonick, who tracks stock buybacks of companies listed on the S&P 500, United Technologies also repurchased $10bn of its own stock in the months preceding the Carrier announcement to “pump up their stock price.”
“There are so many things that they can do with that [$10bn],” Lazonick says. “They certainly don’t have to get rid of 1,400 workers.”
Large stock repurchases by corporations used to be considered market manipulation, but Ronald Reagan’s Securities and Exchange Commission made them legal. At the same time, the increase in the use of stock options as a form of compensation incentivised executives to pump their company’s stock price.
The result, Lazonick argues, “has been a lot of damage to the economy”. He believes that dealing with the buyback phenomenon is central to addressing the jobs challenges in America.
In the 1960s and 70s, major US corporations reinvested about 60 percent of their earnings in capital expenditures, innovation and their workforce. Today, according to Lazonick, it’s only 10 percent or less.
“Retain the money, invest it in people and productive capabilities. That’s the foundation of both a prosperous company and a prosperous economy. And buybacks are just the opposite of that. They are taking the money out of companies, distributing it to shareholders and these companies are being looted. This is trillions and trillions of dollars of the companies that have been at the bedrock of the US economy. If you don’t create a middle class there, you’re not going to have middle-class jobs,” says Lazonick.
Hillary Clinton has talked about combating short-termism in corporate boardrooms and on Wall Street.
But Lazonick says that’s not enough. “We should ban stock buybacks,” he says, “and to get rid of that problem you have to call the whole ideology of maximising shareholder value into question.”
The ideology of maximising shareholder value also took off during the Reagan years.
It was founded by conservative, free market thinkers at the University of Chicago led by the Nobel Prize-winning economist Milton Friedman.
In a seminal 1970 article, Friedman argued that since shareholders “own” the corporation, the only “social responsibility of business is to increase its profits”.
Prestowitz points out that after World War II until the early 1980s, the chief executive was seen as a custodian of a public trust who needed to balance the interests of various stakeholders – not just shareholders, but communities, workers, and customers.
Then, he says, “Wall Street essentially needed to shift the loyalty of the CEO away from his people, towards the shareholders. And how do you do that? Well, you tell the CEO, listen, if you start holding down the wages of your people or better yet if you move their jobs to Chin, we’ll make you so rich that you won’t believe it. And that’s essentially what’s happened.”
Mergers are another strategy pushed by Wall Street to drive up stock prices. We travelled to St Louis to examine their impact on jobs.
In the 1980s, St Louis had 23 Fortune 500 companies headquartered there. Today, as a result of takeovers, there are only eight. According to Brian Feldman, a researcher for the Open Markets Programme at the New American Foundation, the result was thousands of lost jobs and the decline of the local economy’s dynamism.
Between 1997 and 2012 more than two-thirds of some 900 US industry sectors became more concentrated, according to a recent study by the Economist.
Mergers have led to major cuts in the research divisions of companies in pharmaceuticals and other corporate sectors, reducing the resources devoted to innovation. In addition, “consolidation decreases the number of new start-ups,” Feldman says. “As companies acquire market power it’s harder for new entrants.”
Mergers in the banking industry have also made it harder for small businesses, which generate most of the new jobs in America.
In St Louis, the takeover of Boatmen’s bank, a local bank that had strong ties to the community, had a “fairly devastating impact,” according to lawyer Eric Vickers.
The digital revolution is an aggressive destroyer of jobs.
In 1996, Vickers led protests against the takeover of Boatmen’s by NationsBank. Two years later, NationsBank merged with Bank of America, becoming the second largest bank in the US. Local lending “decreased dramatically,” Vickers says.
“The truth is I think most minority businesses have basically given up on going to the major banks to get any sort of financing. They feel that’s a waste of time.”
Galbraith says that what is needed is a much larger number of smaller banking institutions to keep the influence of the major Wall Street banks under control.
“Bernie Sanders spoke to this very clearly, about the need to break up the banks and to place them under a much stricter form of regulation.”
Neither Clinton nor Trump talk about breaking up the banks, but Sanders’ influence resulted in it becoming part of both the Republican and Democratic platform. The Democratic platform also mentions anti-trust issues for the first time since 1988.
One of the early tests for the next American administration will be the proposed takeover of the media company Time Warner by AT&T, which Trump says he opposes. The German company Bayer’s proposed mega-merger with Monsanto, the giant agriculture and biotechnology firm, will also be on the table.
Increasingly, consolidation is taking place on a global scale. Emblematic of this is the Belgian company In-Bev’s 2008 takeover of the St Louis brewer Anheuser Busch. It resulted in the loss of thousands of jobs at the iconic American company.
As a human resources professional at Anheuser Busch, Roni Chambers laid off hundreds for In-Bev. Then she was let go. The corporate culture after In-Bev took over was “ruthless”, Chambers says. “It’s about cost reduction and it’s about returning profits to the shareholders.”
Today, Chambers is a career counsellor with an office at Cortex, a business incubator for high-tech start-ups in St Louis. She is convinced that places like Cortex will create the good paying jobs of the future to replace the lost middle-class jobs of the past. “I have grandchildren today and I don’t believe their jobs exist yet.”
However, it’s not clear that the digital revolution will generate as many jobs as it eliminates, a topic neither presidential candidate has addressed. Analysts such as Martin Ford, author of The Rise of the Robots, say that a guaranteed basic income will be needed to deal with the dislocation that is resulting from advances in digital technology.
“The digital revolution is an aggressive destroyer of jobs,” Galbraith says. But he argues for a job guarantee rather than a basic income grant. “It’s this question about imagination, thinking about what should done and institutions to achieve it. That’s what Franklin Roosevelt and the people around him did when they came up with the Civilian Conservation Corps as part of the New Deal.”
But talk of a federal job guarantee is taboo in American politics today.
The closest Clinton and Trump have come to direct government support for jobs is infrastructure investment. Trump talks about investing billions in repairing roads, bridges and airports, but he hasn’t offered any serious proposals to pay for it.
Clinton says that she will tax the wealthy and set up an infrastructure bank to tap private investors to help fund her $500bn plan. Her proposal emphasises clean energy projects such as installing half-a-billion solar panels in her first term.
The problem, Galbraith says, is that the overwhelming majority of workers today are in the service sector. Rather than construction, jobs need to be created in areas like education, healthcare and care for the elderly. The US needs to develop “institutions in which people can go to find useful work”, he says.
Both presidential candidates are trying to convince the public that their economic proposals can generate a high-growth economy that will resolve the jobs challenges facing American capitalism.
But Galbraith does not think that it is possible to attain the growth rates that were achieved from the end of World War II through to the 1970s, and from the early 1980s through to the end of the century.
“So I think we are looking at two camps, both of which are in illusions about the conditions that we actually face,” Galbraith says. The basis for his presidential choice, he says, is which candidate “will more effectively adjust to reality when it hits them on the head.”