Is Reshoring Real, Is Globalization Dead?

The theme of bringing back working-class, blue-collar manufacturing jobs to the United States is an apparent goal of both of our major parties. But is that real? We know we cannot export most of our infrastructure and real estate driven construction jobs, and that is a sweet spot that does not impose economic distortions to the system. To the extent that we are attempting to use fiscal and monetary policies to incentivize (force?) private employers to recapture overseas operations and bring them back to the US, that imperfect world just may have more negative consequences than true job creation. Both political parties want to incentivize “reshoring,” an attempt to reverse a long period of globalization that accelerated during the Clinton administration and continued through both Democratic and Republican administrations thereafter.

Harsh reality - if the blue-collar work is labor intensive, and where the tasks are not intensely skilled, we have followed two paths: pursuing cheap labor overseas or, where the jobs cannot be easily exported (e.g., US-based agricultural, construction, unpleasant/high risk manufacturing, and hospitality), rely on unskilled immigrants (legal or undocumented). Where the work is highly skilled, we have relied either on robotics/automation or top-of-the line craftspeople. So many high-tech products either have major foreign-made components (for example, US-made cars, on average, contain about 25% overseas-manufactured components) or are primarily made in other countries. German and Japanese care makers now have major factories here. Traditional job loss because of changing demands – like coal-fired plants being replaced by clean energy alternatives – or technology enhancements, now hyper-accelerating because of artificial intelligence, is real.

Of course, we want good jobs here in the United States. Of course, we want well-paid workers. Not only do such factors generate economic prosperity that serves as a large part of our tax base, but they generate a sense of stability for the nation. That we exist in a globally competitive marketplace is relevant, but technology has leveled the playing field a great deal. Still the vestigial damage globalization has generated, in job loss alone, is particularly exemplified in our heartland “rust belt” – decimating cities like Detroit, Michigan, Gary, Indiana and Canton, Ohio – which has likewise given rise to blue-collar-driven populism and instability. The October 23rd New York Times presents this example, which is multiplied across the old line, US manufacturing centers:

“Canton, Ohio, once called itself the City of Diversified Industries. That name, locals acknowledge, does not exactly roll off the tongue. But it reflected an important part of the town’s identity as a manufacturing hub, with businesses like the appliance company Hoover based there… Today, Canton is not doing as well. The number of manufacturing jobs has fallen 45 percent since the late 1990s, as factories have shuttered or moved to Mexico, China and elsewhere. People have joined the exodus; the city’s population is now 71,000, down from 110,000 in 1970. The poverty rate — 25 percent — is nearly double the state average.”

The Democratic approach, which does embrace some tariffs, is predicted on government projects (like the Biden administration infrastructure/energy bill and silicon microchip investment), strengthening unions, making other new investments and incentivized tax credits for the private sector to bring back some jobs. Big incumbent companies, with trillions of dollars in legacy plants, facilities and business plans, argue that regulation will kill both profits and jobs. No one screams louder than BIG OIL, even as alternative energy is beginning to generate vastly more job growth than any project of job loss. Fighting progress has never worked; at best, it is delaying process making dealing with “change reality” the next CEO’s problem. I wonder where all those cans kicked down so many roads wind up?

Republicans favor large tariffs (effectively a national sales tax), pushing undocumented workers out of the country (losing low-cost labor, often for jobs Americans will not take), keeping wages and benefits from rising too fast, containing unions while cutting taxes for the rich. They are very happy touting reducing taxes for the “job creators,” which sounds so good but has never resulted in job creation… instead, such policies simply accelerate the growing federal deficit. Government programs are on the chopping block even when some of these policies represent the true path to economic salvation: like education and training. Unfortunately, the GOP vectors would, according to a major of economists who have evaluated these policies, tank the US economy big time.

“Given that outcome, the tariffs might simply raise prices — as foreign companies pass the cost of higher taxes down to consumers — without leading to more American manufacturing jobs. That would be especially difficult for a place like Canton, where people are relatively poorer and higher prices eat up a greater portion of lower incomes.

“[Yet the Democratic] proposal of new investments and tax credits might have more success bringing back some jobs. Federal handouts have kick-started renewable energy projects nationwide. And President Biden’s subsidies have led to a boom in new factory construction, including a large microchip plant in Phoenix… But subsidies are usually upfront and temporary, limiting their effect. Companies build new factories expecting to keep them open for years. They can’t do that if they know a crucial source of funding will eventually expire. That helps explain why, despite Mr. Biden’s subsidies, the number of manufacturing jobs nationwide remains 34 percent lower than it was in the late 1970s.” NYT

But even in my industry – film, television and digital content production and distribution – cultural creation (even bastions of “as American as apple pie” fare) – is beginning new era of globalized alternatives. The world is battling to bring production to shores everywhere, from the UK to Saudi Arabia, with lucrative subsidies and massive investments in technology. As Ryan Faughnder, writing for the November 4th Los Angeles Times, notes the post-pandemic production exodus, and the big questions raised over state production incentives: “The U.S., and California in particular, has taken a disproportionate share of the pain. Global production activity dropped 17% in the third quarter compared with the same period in the pre-strikes year of 2022, according to tracking firm ProdPro. However, the U.S. suffered a much steeper decline, with volume plummeting 35%. In contrast, Canada saw a 1% increase during that period.

“Projects that couldn’t secure California’s tax credits moved elsewhere, with ‘an estimated 71% of rejected projects subsequently filming out-of-state,’ [California Gov. Gavin] Newsom’s office said [as he proposed a massive increase in subsidies]…. There’s been ample debate about the usefulness and effectiveness of state film and tax incentives. Industry-funded studies and reports from organizations such as the Los Angeles County Economic Development Corp. have touted tax credit programs for creating jobs and boosting economic activity in their respective states. Production supports jobs directly and indirectly — by keeping prop houses, caterers and other businesses busy.

“However, others question the ultimate return from such programs, saying that their benefits are exaggerated and that they amount to a race to the bottom between the states. A report commissioned by New York’s Department of Taxation and Finance said that the state’s film production credit program ‘does not provide a positive return to the state’ in terms of taxes, generating 15 cents in direct tax revenue for every $1 invested. The same report argued that some of the productions that received tax benefits probably would have filmed in New York anyway… Similarly, a Georgia State University study estimated a fiscal return of less than 20 cents on the dollar for Georgia’s program.” Without subsidies, however, US film and TV production is dead.

I am reminded of the early 20th century when towns banned cars from passing through. Scared the horses, it seems. There aren’t a whole lot of horses and buggies around these days. Add artificial intelligence to the mix, factor in the silent firing of big companies making work so painful, workers quit… to make room for AI-empowered replacements. There are better answers, but those do engender a long-term consistency and commitment, which “instant solutions” are an anathema to impatient Americans.

I’m Peter Dekom, and instead of fighting polarizing educational culture wars, the whole country needs to triple down on the only viable long-term solution to general economic prosperity: REAL EDUCATION.