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August 12, 2008

One Effect Of Money's Influence On Policies

-- by Dave Johnson

This post originally appeared at Speak Out California

A new briefing paper from the Economic Policy Institute titled The China Trade Toll [PDF document] says that since China entered the World Trade Organization in 2001 our China trade policy "has had a devastating effect on U.S. workers and the domestic economy."

The report shows that since 2001 California has lost 325,800 jobs (55,400 of these just in the last year) to China due to these policies. And since 2001 2.3 million jobs were lost nationally. According to the report even those workers able to find new jobs saw their wages drop an average of $8,146 per year. (These figures are only for jobs and income lost to China and do not include jobs and income lost to other countries.)

And, of course, this effect is not limited to the workers who lost their job. This also has an effect on works' ability to ask for raises and imporvements in working conditions. From the report,

It is also critical to recognize that the indirect impact of trade on other workers is significant as well. Trade with less-developed countries has reduced the bargaining power of all workers in the U.S. economy who resemble the import-displaced in terms of education, credentials, and skills. Annual earnings for all workers without a four year college degree are roughly $1,400 lower today because of this competition…
Specific industries were affected more than others by our massive trade deficit with China. Computer and electronic product manufacturers were hit hardest, losing an eliminated 561,000 jobs in this period. Jobs lost to the deficit tended to be better-paying ones,
More than two-thirds of the jobs displaced by China trade deficits were in manufacturing, which tends to employ a higher-than-average share of workers with a high school degree or less (43.7% of workers displaced) and to provide those workers with good wages and benefits. More than half (55.6%) of the jobs displaced came from the top half of the U.S. wage distribution, and among this group a disproportionate share came from the top 10th of all U.S. wage earners. African Americans (230,000 jobs lost), Hispanics (339,000), and other ethnic groups (219,000) all suffered from the loss of jobs such as these that pay substantially more and offer better benefits than jobs in other industries.

Here is what is going on. First, China "pegs" its currency to the dollar instead of letting it follow market rates as the dollar does. So the dollar's decline does not make it cost less to manufacture here, which would bring manufacturing jobs to the U.S. Next, China doesn't allow workers to organize labor unions. So their workers are not really benefiting from all of this. Wages there are kept low, and prices grow ever higher due to the currency manipulation of "pegging" to the dollar. And finally, China imposes barriers on imported goods. So while they manufacture and sell to the rest of the world, they keep their own people from buying things made elsewhere.

As a result China exported $323 billion in goods to the U.S. in 2007, and purchased only $61 billion in goods from the U.S.

The report concludes,

The growing U.S. trade deficit with China has displaced huge numbers of jobs in the United States and has been a prime contributor to the crisis in manufacturing employment over the past six years. Moreover, the United States is piling up foreign debt, losing export capacity, and facing a more fragile macroeconomic environment.
And, the report points out that this isn't particularly in the long-term interests of the Chinese people, either,
Is America’s loss China’s gain? The answer is most certainly no. China has become dependent on the U.S. consumer market for employment generation, has suppressed the purchasing power of its own middle class with a weak currency, and, most importantly, has held hundreds of billions of hard currency reserves in low-yielding, risky assets instead of investing them in public goods that could benefit Chinese households. Its vast purchases of foreign exchange reserves have stimulated the overheating of its domestic economy, and inflation in China has accelerated rapidly in the past year. Its repression of labor rights has suppressed wages, thereby artificially subsidizing exports.
Of course trade is good, when it is a two way street. If trade is fair, it benefits everyone involved. But this report shows that what the people who run American corporations call "free" trade is hurting our economy more than it is helping. Now that several years of these policies have passed we can measure the results, and the results have not been good for the American people.

Because of our country's trade policies with China 325,800 jobs have been lost in California. Meanwhile China is allowed to manipulate their currency, prevent unions, and set up barriers that keep their people from buying goods we make here.

What this has meant is big corporations can get out of paying American workers a fair wage because they can get away with paying Chinese workers hardly anything, while a very few people at the top of the American and Chinese food chains pocket the difference entirely for themselves. If you consider the huge amounts that some of these individuals are pocking from this scheme -- some receiving hundreds of millions of dollars each year -- aren't we at least benefiting from the taxes they pay? Unfortunately no, because of the tax policies of California and national Republican: low taxes for the rich, higher taxes for the rest of us, and borrowing to cover the resulting deficits. Here in California the Republicans are even blocking an effort to ask the super-rich to pay the same sales taxes that the rest of us pay on everything we buy when they buy yachts and private planes. But no, they don't even have to pay that tax.

The result of these tax policies is that while we lose jobs,and the remaining workers get pay cuts, we also lose out on government services like schools, fire protection, police, roads, mass transit and everything else our government does for us. And that's not all. Because of these tax policies the state and national governments are borrowing huge amounts, and we have to pay that back with interest.

All of this -- the China trade policies, the tax policies, the massive borrowing -- come from the influence that money buys in our political system. The minute someone is able to use some money to gain an advantage, of course they use that to get even more money, which lets them buy an even bigger advantage, and the cycle continues.

You can easily see the effects of the money with the massive ad campaigns around California's elections and ballot initiatives -- and the resulting budget gridlock as a few corporate-connected Republicans block every effort to ask the rich and connected to pay their share.

We are in a stranglehold situation. A very few wealthy people are exporting our jobs and pocketing the money they would have paid as wages and benefits. They are not even paying taxes on the ill-gotten gains, which forces our state and national governments to borrow. And they are getting away with it because they are able to use some of that money to further influence our political system.

Here's the thing. They're not even using their own money to purchase this influence. Since they have control of the resources of large corporations, they are using the money from those corporations to fund the system of influence, which directs much larger amounts of cash back to themselves.

I think the way to stop this is to prevent any use of corporate money for anything other than operating the corporation. I'll share some ideas on that in later posts.

Click through to Speak Out California -- Please leave a comment with your thoughts.

Posted by Dave Johnson at August 12, 2008 9:50 AM


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