Last week saw the spectacle of a president-elect effectively using his bully pulpit to keep a single company from offshoring jobs. Simultaneously, another U.S. company was told by a Geneva trading group that job preservation efforts there were illegal under international law.
Why was the first case (Donald Trump’s promising of tax breaks to keep Carrier jobs in Indiana) okay, and the second (Washington state’s tax breaks to do the same for Boeing jobs) a violation of World Trade Organization rules?
The answer lies in how generations of policymakers have put one vision of globalization on a pedestal, while sidelining others.
To see how, let’s examine the basics. Since World War II, governments have made it easier to shift jobs offshore while making it harder to block the fruits of that labor from being imported back into the home country. WTO rules locking in low tariffs are a big part of that effort. As a result, companies were given free rein to design complex global supply chains that can be reconfigured when the price of oil shifts, political instability rises, or interest rates move. Understandably, this has created anxieties among workers. While some have managed to find jobs servicing these supply chains, others are competing for fast-disappearing opportunities in an increasingly technology-serviced manufacturing sector. Workers not only work, they also vote, thereby forcing state, local, and national governments to respond. One way governments have done so is through the tax code, offering breaks and subsidies to companies that stay rooted in their home communities. Such competitive tax-slashing invites mischief by encouraging countries and localities to use the power of the purse to outbid one another. That’s why WTO rules try to level the playing field by outright prohibiting inducements contingent on producing exports for the global market or restricting imports.
This model works reasonably well for some economic problems, but not others. Think of it like a traffic cop who only blows his whistle for moving violations at intersections, but ignores everything in between. If government manipulation makes it harder for goods to cross borders (or forces them to), the WTO steps in. Otherwise, no problem. That’s why Trump’s Carrier moves are likely legal under trading rules. Naming and shaming a company in tweets is perfectly acceptable, as is lowering the taxes that all companies pay – both reportedly part of the “deal” Trump struck. The reverse is also true: Obama and his predecessors failed to take such steps, and the WTO didn’t care. Similarly, global rule enforcement is next to useless in getting countries like Germany and China to help global recovery by boosting the purchasing power of their citizens, or getting Carrier to pay taxes rather than avoid them.
The rub: the most enforceable parts of our global economic governance system don’t look holistically at economic health, only those labeled “trade.”
Industrial subsidies aren’t the sole area where a trade obsession distracts. Since the Kennedy administration, workers that can prove they lost their job to imports can qualify for trade adjustment assistance. In contrast, workers displaced by technology or other factors get bupkis. This has reinforced a long-simmering political tendency that values manufacturing jobs (read: trade-competing) above service jobs. With the right universal policies on health, family, and education in place, both sectors would benefit. Instead, we’ve means-tested and targeted our social safety net to death, with ever-smaller groups being able to access relief. This converts politics into a fight for scraps between rural and urban, poor and middle-class.
A different version of globalization is possible and necessary. Universal benefits and corporate social responsibility at home coupled with economic stimulus coordination internationally can make the 21st century into a positive sum game for all the planet’s citizens rather than pitting us against one another. As a corporate executive asked about Trump’s Carrier cajoling said, “If the president of the United States says, ‘Do it,’ you’ve got to give it some very serious thought.” Here’s to hoping for more serious thinking from corporate and government leaders.
Also published on Medium.