When Barack Obama pushed aggressively to bail out the U.S. auto industry in 2009, saving well over a million American jobs in “one of the most successful interventions in U.S. economic history,“ Republicans raved against the move as an illegitimate use of government power and tried to block it in Congress. They also fought an earlier, less ambitious rescue effort by President Bush, a member of their own party, which forced Bush to rely on Democratic votes to pass the measure.
As one Indiana Republican described his party’s opposition at the time, “The American people know we can’t borrow and spend and bail our way back to a growing economy or a healthy domestic automotive industry.” Yet that’s exactly what we’ve since done. The economy is growing, the auto industry is healthy, and every penny of the auto bailout money has been returned to the American taxpayer.
Given that history, it’s interesting to watch many of those same Republicans now demanding that we hail Donald Trump as some kind of economic miracle worker. As he’ll announce today in Indiana, Trump has helped put together a package of economic incentives that will keep 850 factory jobs at a Carrier air conditioner plant from moving to Mexico. Another 350 headquarters and engineering jobs slated to move to North Carolina will also stay in Indiana. That’s all good news, particularly for those workers and their families.
Unfortunately, another 1,300 jobs at the factory will still be moving to Mexico, where Carrier can pay its new workers less than $20 a day. And it’s worth noting that Vice President-elect Mike Pence, the Indiana governor who helped negotiate the state tax incentives needed to keep the Carrier plant open and who will bask in today’s success alongside Trump, also happens to be the Indiana congressman quoted above as opposing government intervention in such matters.
Funny how these things work.
In addition to state tax incentives, Trump and Pence apparently found leverage in the fact that Carrier’s parent company, United Technologies, holds some $5.6 billion in defense contracts with the federal government that might be endangered if the company refused to play ball. As an Indiana economic-development official told the Indianapolis Star, “This is an enormous company with all kinds of subsidiaries that do government work, and I am sure they want to keep it.”
As the Star reports:
“Carrier wants to stay in good graces with the federal government,” another source with knowledge of the negotiations said. “Finalizing this deal was a show of good faith.”
The source said Vice President-elect Mike Pence, who is still governor of Indiana, and his state commerce secretary, Victor Smith, had been in discussions with Carrier for weeks. In what the source described as a “carrot and stick” approach, Trump entered the negotiations later to discuss the company’s relationship with the federal government.”
Personally, I don’t have a big problem with using that kind of leverage in these particular circumstances, for this particular goal, even though it’s of dubious legality. But as I suspect we’ll learn, once you start using lucrative federal contracts as a political reward or punishment, you open the door to a whole peck of trouble. (It also reflects the kind of bullying approach that we’re likely to see often from the incoming administration, in pursuit of goals that will be a lot less defensible than saving jobs. )
But here’s the larger problem, as reflected in this chart put together by the conservative American Enterprise Institute. As it documents, U.S. production of auto parts and automobiles hit an all-time peak in September 2016, up 21.2 percent from production in 2000. Yet that record level of production has been achieved with 34 percent fewer workers.
Look closely at what has happened just since the recession. Output has soared by 165 percent, while growth in employment has been much more gradual. Overall, an estimated 80 to 90 percent of the manufacturing jobs lost in this country since peak manufacturing employment in 1977 have been lost due to productivity improvement here at home, not because the factories moved overseas.
As the Wall Street Journal points out, “Even if Indiana could negotiate one such deal every single week for the next three years, adding 1,000 jobs each time, manufacturing would still employ fewer people in the state than it did in the year 2000.”
There is nothing that Trump or anyone else can do to reverse or slow that process. Tax cuts certainly can’t fix it; if anything, they may accelerate investment in robots and other labor-saving technologies. And cutbacks in the social safety net will only compound the damage done to those cast adrift by that process. The policy challenges created by this new economy require that we think through fundamental changes in how we reward and allocate work, and our leaders are a long, long way from coming to grips with that fact.