Do Free Market Policies Lead to a "Race to the Bottom"? (Hint: No)

The recent entry of Texas Governor Rick Perry into the Republican presidential race has produced a stampede of bad op-eds and blog posts from Democrats and other liberals seeking to discredit him and/or Texas' amazing successes.  There are a lot of bad hit-pieces out there at this point - and a lot of great rebuttals (see, e.g., here, here, here, here and especially here) - but for my money the worst so far is today's Politico op-ed by Delaware Governor Jack Markell, who warns that Governor Perry's radical, free market ideas would lead to a "race to the bottom" in the United States:

Perry argues that if the nation adopts his approach to business development — based on less regulation, less taxation and less litigation — the economy “will absolutely take off like a rocket.”

Perry’s priorities are not unimportant. But there are lots of countries with no regulation, little taxation and no real threat of litigation — usually also where wages are low and much of the wealth resides with a tiny slice of the elite.

That’s a lousy model for middle-class Americans....

The model favored by Perry is fueled by low-wage jobs, which creates a race to the bottom. The middle-class model involves competing with other countries in a race to the top — to attract research and development operations, high-end manufacturing, design shops and the like.

Now, leaving aside the fact that it's a total myth that the jobs created in Texas are all low-wage "McJobs," or that Perry adopted some sort of scorched earth campaign against government spending - on education, infrastructure or anything else - during his tenure as Governor, I'd like to focus tonight on Governor Markell's main message: that fiscally conservative, free market, "tea party" policies have lead to a "race to the bottom" around the world and would inevitably do the same here in the United States.  Is that really a credible premise?  Are the free market countries championed by fiscal conservatives all banana republics with "low wages" and tremendous income inequality?

In short, no.  Not at all.

Indeed, had the Governor even done the most basic of research, he would have seen that the most "free market" ("free-marketest"?) countries in the world, praised by conservatives and libertarians alike, are also some of the wealthiest, most modern and, in many cases, most "progressive."  For example, the Heritage Foundation's Index of Economic Freedom, which examines countries against a series of fiscally-conservative benchmarks (e.g., low taxes, limited regulations, free trade, small government), lists such backwards, downtrodden places as Hong Kong, Singapore, Australia, New Zealand, Switzerland, Canada, Ireland, Denmark in its top ten "most free" countries.  Indeed, the only country that could possible meet Governor Markell's misleading description is Bahrain.

Meanwhile, the libertarian Frazer Institute's Economic Freedom of the World Report, using similar measures of economic freedom (including limited government), lists most of the same countries that Heritage's Index identified: Hong Kong, Singapore, New Zealand, Switzerland, Chile, Canada, Australia, Mauritius, and the United Kingdom.  What horrible, dangerous countries!

Oh, wait.

On the other hand, the countries that rank near the bottom (or, on Gov. Markell's apparent scale, the top!) of these lists are such liberal paradises as Cuba, Iran, North Korea, Venezuela, Myanmar, Zimbabwe and Libya.

Sign me up!

In all seriousness, this simple example makes it abundantly clear that the Governor has no idea what he's talking about when he says that, if President Rick Perry turned the United States into some sort of "tea party paradise," it would inevitably turn into a third-world disaster zone.  The world's real free market paradigms, according to the very fiscal conservatives that Governor Markell openly derides, are some of the richest, healthiest and most developed countries in the world.  Considering that a simple Google search makes this fact abundantly clear, the Governor's either really slow or really disingenuous.

I'm guessing the latter, but, well, you never know.

But, hey, maybe the Governor has some fantastic ideas of his own that could somehow trump the centuries of proven prosperity that free market capitalism has repeatedly provided across the globe:

Building a sizable, vibrant and growing middle class requires great schools, a highly trained workforce and an attractive and exciting quality of life. That’s why initiatives like common core standards, heightening our focus on STEM education (science, education, engineering and math) and investing in our state and national parks and open space continue to be so important.

Yes, nothing will get this country back on its economic feet faster than Government spending (sorry, "investment") on our state and national parks and, umm, "open space."  We're saved!

Ugh.

No wonder liberals are openly wishing for an alien invasion.  They've clearly run out of earthly ideas.

Unions, Trade and Robots

As I recently discussed in the context of Trade Adjustment Assistance, the economic effects of free trade are strikingly similar to those of technology advances:

As economists like Cafe Hayek's Don Boudreaux frequently note, the beneficial job churn associated with import competition is no different from that associated with technology gains:

Would it have been appropriate, for example, for the White House to prevent Americans from buying iPods and Kindles until and unless Congress funded the retraining of workers who lost their jobs at Tower Records and Border’s? Should government have stopped automakers from improving the quality of their vehicles until and unless the public fisc was tapped for funds to retrain auto mechanics and tow-truck drivers? Ought government restrict consumers’ access to Lasik surgery until and unless taxpayers pay to retrain workers who make eyeglasses, contact lenses, and saline solution?

In short, people lose jobs due to import competition and they lose jobs due to new technologies (a lot more of the latter than the former, by the way), and while those job losses are obviously tough for the affected workers, American society as a whole is clearly better off by letting the free market work. So why do we treat globalization so differently than mechanization? Boudreaux reasons that it's because "the only thing unique about international trade is its ability to be demagogued by politicians seeking votes from the economically uninformed"...

The same concepts apply to protectionism: those who oppose free trade are just as misguided as those who oppose mechanization.  So with this in mind, I invite you to read the following obituary of inventor George Devol (emphasis mine):

George C. Devol, 99, a self-taught tinkerer whose invention of the robotic arm revolutionized factories around the world, died of a heart ailment Aug. 11 at his home in Wilton, Conn.

The robotic arm, which Mr. Devol dreamed up in the early 1950s, was originally called the “programmed article handling device.” It was a long name for a relatively simple and very smart machine that, in the coming decades, would become a fixture on modern assembly lines.

The Unimate, as the product became known, was designed to perform jobs that were dangerous or costly for human workers. Mr. Devol sold the first of his robotic arms in 1961 to a General Motors plant in Trenton, N.J., where it was programmed to handle the hot metal used in die casting.

Other early customers included Chrysler and Ford. Partly because of the influence of labor unions, which saw the robots as a threat to U.S. jobs, sales did not take off in the United States.

Mr. Devol’s product was wildly successful in countries such as Japan, however, and in the late 1960s the company signed a deal with Kawasaki Heavy Industries. In 2006, the Institute of Electrical and Electronics Engineers estimated that there were more than 950,000 industrial robots in operation worldwide....

Mr. Devol was inducted into the National Inventors Hall of Fame this year. “Devol’s patent for the first digitally operated programmable robotic arm represents the foundation of the modern robotics industry,” his induction citation reads. “Today, industrial robots have transformed factories into safer places and improved products with precision and consistency.”...

But like most odd couples, Engelberger and Mr. Devol had something important in common. They believed in the potential of robotics for the United States, even at a time when U.S. clients weren’t buying.

“We’re handing it to the Japanese on a platter,” Mr. Devol told The Washington Post in 1983. “I just can’t understand America.”

When he was in his 70s, Mr. Devol began dreaming up an automatic factory that he would lease to companies.

“How can we afford to let a country as big as this go down the drain in manufacturing capability?” he said in a 1984 interview with the Miami Herald. “I’m the perpetual Don Quixote. Always flailing my arms.”

This really explains a lot, doesn't it?

Caterpillar CEO on Trade and How to (Really) Win The Future

President Obama and his underlings just love to talk about improving American competitiveness in order to Win the Future.  But what does the US business community - well, those not on the milky-end of the government teet - think about the current state of American policy and its impact on our companies' future global competitiveness?  Courtesy of HotAir comes a fantastic CNBC interview with the CEO of Caterpillar - one the shining stars of America's thriving manufacturing sector - on just those issues.  It's well worth your 15 minutes:



In short, Mr. Oberhelman sees the global economy not as a threat, but as a great business opportunity.  He's smartly positioned Caterpillar to take full advantage of both foreign and domestic market conditions - through things like advocating robust trade liberalization, currency hedging and maintaining near-total control over business operations in interventionist foreign markets - and he sees competitiveness-killing US government policies, not free trade or low-cost competitors in China or Brazil, as the greatest threat to his company's viability and the future of the American economy.

And what kind of US government policies are undermining our global competitiveness and thus jepoardizing our companies and jobs?  I'll let Oberhelman explain:



My favorite quote:

We've announced three or four arguably brand-new facilities [in the United States] bringing work in from outside. And frankly we weigh all of these things in which state is the most business friendly. It's not a question of labor cost or who's cheaper. If you chase cheap labor around the world, you're never going to win. It's a lot more than that. The state's got to be competitive.  The country's got to be competitive....  You see states going the other way [from Illinois], where they're very pro-business and reducing taxes, and guess where we land our plants that are very competitive.... The latest and greatest is in Texas.  We brought a plant that in the past has assembled hydraulic excavators in Japan for shipment to the U.S.... we've moved that plant to south Texas... 5,000 to 6,000 units a year, 600 to 700 high-paying assembly jobs.

Nice.  And how exactly does Mr. Oberhelman think the current administration is doing to keep American companies strong and competitive?  Well, the answer to that is in the second video, but I'll let HotAir spell it out for you.

(Hint: it's not good.)

It's Officially Time for the White House to Find a New Fake Reason for Stalling those Pending FTAs

Back in December, an enterprising reporter asked then-White House Press Secretary Robert Gibbs why the President was only advocating congressional passage of the US-Korea FTA instead of pushing full-steam-ahead on all three completed-and-signed US FTAs.  Gibbs quickly responded by blaming the FTAs' stagnation on the new "Tea Party Republicans":

Gibbs conceded Friday there was considerable Democratic opposition to the Colombia deal, adding that there are doubts about whether newly-elected, tea party-affiliated Republicans would be enthusiastic about trade pacts. Gibbs called them "not your country-club Republicans."

He added that there is no firm timeline for pushing the deal, "or, for that matter, the Panama agreement."

Gibbs certainly wasn't alone in pushing this meme.  Indeed even some on the right also ignorantly assumed that tea partiers, and the Republican politicians that they swept into office last year, were stark raving protectionists.  On the other hand, some more enlightened analysts (including your humble correspondent) quickly rebutted these unfounded allegations about the new GOP freshman class in Congress by citing not trite, partisan/media-induced stereotypes but, you know, actual facts like: (i) support for free trade is perfectly in line with Tea Party support for smaller government, lower taxes and the free market; (ii) Tea Party favorites like Sarah Palin and Michele Bachmann, as well as Tea Party organizations like Americans for Prosperity and the Tea Party Express, loudly support free trade; and (iii) almost none of the new GOP freshmen ran on a protectionist platform.

Well, once again, we were right and they were wrong.  (Shocking, I know.)

A few weeks ago, new GOP Congressmen Tom Reed (R-NY) and Rick Berg (R-ND) drafted a letter to the White House urging President Obama to expressly support congressional efforts to pass the three pending FTAs with Colombia, Panama and South Korea within the next six months.  The full letter is available here (and some news reports are here and here).  As you can see, it's a pretty straightforward expression of broad support for free trade (and not just exports or FTAs, either), and considering that 66 of 87 - a whopping 78%! - of all GOP freshmen signed on to the Reed-Berg letter, it's abundantly clear that that the White House's and others' claims/fears about "tea party Republicans" and protectionism were totally unfounded.

Now, some critics might argue that this is hardly a resounding exclamation of GOP support for free trade because 21 frosh didn't sign the letter, but these critics would be dead wrong for several reasons, including:

• More than three-fourths of new GOP members were willing to go out on a limb to sign a general letter supporting free trade and the pending FTAs, even though there is no actual implementing legislation on the table (and thus no pressure from leadership or tangible data/law to support their stance).  Considering the flak to which this public statement of principles will (needlessly) expose these most-vulnerable of House Members from protectionism-peddlers in the DCCC and elsewhere, and considering that the other side is pressing these very same guys to jump on the protectionism bandwagon, these numbers are pretty darn impressive.

• If you look at the breakdown of signers and non-signers (pasted below; yellow/bold is for signers), you see pretty quickly that about 15 of the 22 non-signers are in very difficult, traditionally trade-skeptical districts (rustbelt, textiles, etc) that would make voting for an FTA pretty politically difficult in even the best of times.  So that leaves only about seven folks from states like AL, MS, NH, TN, VA, and WA that shouldn't have a lot of anti-trade constituents and thus should've signed onto the letter.  Count these folks as the only "disappointments" of the bunch, and that represents only 8% of the entire gang.  Moreover, there are several folks from trade skeptical states like Michigan, Illinois, Indiana, Ohio and Pennsylvania who did sign on. (Again, pretty darn impressive.)  Hopefully, in the coming months some of the non-signers will learn more about the issue (here's a great start), ditch the protectionist myths, Big Government and crony capitalism, and come around on the issue.  (And I strongly suspect that many of them will too if/when their votes are needed.)

• The breakdown also shows that Tea Party favorites like Allen West, Tim Scott, Dan Benishek and Kristi Noem are all on board - another strong signal that the "Tea Party protectionism" meme is absolute bunk.

• Finally, from a big picture perspective, this is undeniably good news for the future of not only those pending FTAs but also US trade policy more generally.  I'd guess that the Democrats that these GOP freshmen replaced were at least 75-25 against free trade (esp. those 06-08 Dem freshmen who campaigned on, and championed, protectionism - yikes were they bad), and they were probably much worse than that.  Indeed, only 4% of all House Democrats in the 110th Congress opposed the House resolution to suspend "fast track" consideration of (and effectively kill) the US-Colombia FTA.  So to get 67 new members to wholeheartedly embrace free trade is a very, very good sign.
  

Now, if only we could get the White House to join these new House members and strongly support a bold US free trade agenda.  Fortunately, with today's letter, the President is running out of excuses for why he can't/won't.

(And looks like the MSM needs a new excuse too.)

District	Representative
Alabama 2	Martha Roby (R)
Alabama 5	Mo Brooks (R)
Arizona 1	Paul Gosar (R)
Arizona 3	Ben Quayle (R)
Arizona 5	David Schweikert (R)
Arkansas 1	Rick Crawford (R)
Arkansas 2	Tim Griffin (R)
Arkansas 3	Steve Womack (R)
California 19	Jeff Denham (R)
Colorado 3	Scott Tipton (R)
Colorado 4	Cory Gardner (R)
Florida 12	Dennis A. Ross (R)
Florida 2	Steve Southerland (R)
Florida 22	Allen West (R)
Florida 24	Sandy Adams (R)
Florida 25	David Rivera (R)
Florida 5	Rich Nugent (R)
Florida 8	Daniel Webster (R)
Georgia 7	Rob Woodall (R)
Georgia 8	Austin Scott (R)
Idaho 1	Raúl Labrador (R)
Illinois 10	Robert Dold (R)
Illinois 11	Adam Kinzinger (R)
Illinois 14	Randy Hultgren (R)
Illinois 17	Bobby Schilling (R)
Illinois 8	Joe Walsh (R)
Indiana 3	Marlin Stutzman (R )
Indiana 4	Todd Rokita (R)
Indiana 8	Larry Bucshon (R)
Indiana 9	Todd Young (R)
Kansas 1	Tim Huelskamp (R)
Kansas 3	Kevin Yoder (R)
Kansas 4	Mike Pompeo (R)
Louisiana 3	Jeff Landry (R)
Maryland 1	Andy Harris (R)
Michigan 1	Dan Benishek (R)
Michigan 2	Bill Huizenga (R)
Michigan 3	Justin Amash (R)
Michigan 7	Tim Walberg (R)
Minnesota 8	Chip Cravaack (R)
Mississippi 1	Alan Nunnelee (R)
Mississippi 4	Steven Palazzo (R)
Missouri 4	Vicky Hartzler (R)
Missouri 7	Billy Long (R)
Nevada 3	Joe Heck (R)
New Hampshire 1	Frank Guinta (R)
New Hampshire 2	Charles Bass (R)
New Jersey 3	Jon Runyan (R)
New Mexico 2	Steve Pearce (R)
New York 13	Michael Grimm (R)
New York 19	Nan Hayworth (R)
New York 20	Chris Gibson (R)
New York 24	Richard Hanna (R)
New York 25	Ann Marie Buerkle (R)
New York 29	Tom Reed (R )
North Carolina 2	Renee Ellmers (R)
North Dakota AL	Rick Berg (R)
Ohio 1	Steve Chabot (R)
Ohio 15	Steve Stivers (R)
Ohio 16	Jim Renacci (R)
Ohio 18	Bob Gibbs (R)
Ohio 6	Bill Johnson (R)
Oklahoma 5	James Lankford (R)
Pennsylvania 10	Tom Marino (R)
Pennsylvania 11	Lou Barletta (R)
Pennsylvania 3	Mike Kelly (R)
Pennsylvania 7	Pat Meehan (R)
Pennsylvania 8	Mike Fitzpatrick (R)
South Carolina 1	Tim Scott (R)
South Carolina 3	Jeff Duncan (R)
South Carolina 4	Trey Gowdy (R)
South Carolina 5	Mick Mulvaney (R)
South Dakota AL	Kristi Noem (R)
Tennessee 3	Chuck Fleischmann (R)
Tennessee 4	Scott DesJarlais (R)
Tennessee 6	Diane Black (R)
Tennessee 8	Stephen Fincher (R)
Texas 17	Bill Flores (R)
Texas 23	Quico Canseco (R)
Texas 27	Blake Farenthold (R)
Virgina 9	Morgan Griffith (R)
Virginia 2	Scott Rigell (R)
Virginia 5	Robert Hurt (R)
Washington 3	Jaime Herrera Beutler (R)
West Virginia 1	David McKinley (R)
Wisconsin 7	Sean Duffy (R)
Wisconsin 8	Reid Ribble (R)