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Growth, Prosperity and the Middle Class: Saving Globalization from Populism
The next big technological innovation is at hand, but the U.S. does not have the ready capital, entrepreneurial energy, and workforce to make it into an economic motor as we did the internet twenty-five years ago. The economic zone that does – it can still be us, but the EU, China, or India will step in if we don’t – will ride the resulting wave of innovation and wealth to the forefront of the global economy.
The opening of global markets since 1945 facilitated sustained economic growth in the U.S. and across the world. Technological innovation, driven by global competition, has fueled remarkable increases in labor productivity, enabling the U.S. to remain competitive in advanced manufacturing even as we pioneered a digital revolution that fostered new business models and new products.
At the same time, the global market has been more beneficial to some parts of society than others. Employment in parts of the manufacturing value chain has fallen as workers with lower levels of training have been squeezed out, mainly by automation but also by foreign competition.
Many of these people feel cheated and helpless, legitimate feelings contributing to the populist movements. This dynamic weakens our global leadership on trade and security, in turn undermining our prosperity. There is a need for creative thought leadership on how policy can and should respond.
It is clear that not every country’s market is as open to trade as ours. We haven’t done this out of altruism, but because we recognize that the resulting competition makes us more competitive and innovative. Still, to ensure that our workers benefit, we have pursued free trade agreements that created level playing fields in parts of Latin America, Africa and Asia. An exception is China, where trade barriers persist. Manufacturing jobs have been traded for inexpensive Chinese goods, boosting corporate profits and increasing middle-class purchasing power but allowing household incomes at the low end to erode.
As we address the concerns of displaced workers in our countries and focus on prying open the Chinese market, we should keep in mind that innovation and structural change are the mainsprings of a market economy. It is neither possible nor desirable to claw back lower-skilled manufacturing jobs that have left our countries, or to focus policy on preserving existing industries.
On the contrary, history suggests that embracing the next big innovation tends to work out well. The very markets we relied on to manage the adjustment to trade and innovation put us in a strong position, but those markets have been weakened since the financial crisis of 2008/9. We believe an effective strategy to compete and thrive in the coming century will be built around three core principles:
- Reaffirm the benefits of freer trade. Boost productivity by removing unnecessary costs from our supply chains. Deliver on the promise of open markets by strengthening enforcement of rules of origin so that inputs contribute to our manufacturing base. Use WTO disciplines more aggressively to help our Chinese friends see the value of playing by the rules.
- Strengthen labor markets. We should encourage employee retraining and facilitate geographic mobility, in particular with portable, widely-recognized skills certifications. Our education and training institutions are insufficiently attuned to the long-term needs of employers, and we all need to see learning as a lifelong pursuit. We need to develop a flexible approach to immigration that complements and strengthens our workforce.
- Strengthen capital markets. Sustained net borrowing by the government and negative real interest rates are crowding out private investment and stifling innovation. Regulation has squeezed small local banks out of the market and raised the cost of doing business to the point that smaller firms are unable to grow and thrive, depriving the economy of a major source of innovation and job creation.
The problems we currently face are not because we have too much faith in the market, but because some of our principal competitors have too little. In addition, our own countries’ government has assumed too much initiative and accumulated too much debt, weakening our market’s ability to overcome the structural adjustment challenge. By clinging to yesterday’s industries and technologies, we are preventing the industries and technologies of tomorrow from taking root in the U.S.
Matthew Rooney joined the Bush Center in June 2015 following a career as a Foreign Service Officer with the U.S. Department of State. At postings in Washington and abroad, he focused on advocating market-driven solutions to economic policy challenges in both industrialized and developing countries, and on protecting the interests of U.S. companies abroad.
In Washington, Rooney was on loan to the U.S. Chamber of Commerce to create a high-level private sector advisory body for the Summits of the Americas, working closely with the U.S. private sector and with companies and business associations from throughout the Americas to negotiate an agenda to promote economic integration in the region. Previously, he was Deputy Assistant Secretary responsible for relations with Canada and Mexico and for regional economic policy. In prior Washington assignments, Rooney worked for then-Senator Fred Thompson, and supported negotiations to open global markets to U.S. airline services.
Abroad, Rooney was Consul General in Munich, a Consulate General providing a full range of Consular and export promotion services, supporting a permanent presence of 30,000 U.S. forces in two major base complexes, and carrying out a media and public relations initiative in support of U.S. diplomatic objectives in Germany. As Counselor for Economic and Commercial Affairs at the U.S. Embassy in San Salvador, El Salvador, he laid the groundwork for free trade negotiations between the United States and the five countries of Central America, and promoted market-based reforms for electrical power. Prior to this, he served in various posts in Germany, Gabon and Côte d’Ivoire.
Rooney studied Economics, German and French at the University of Texas at Austin and received his Master’s Degree in International Management at the University of Texas at Dallas.Full Bio
TARIFF-IED: Trade Talk with Matthew Rooney
This week, trade relations between the U.S. and India are continuing to escalate. Earlier this month, the U.S. stopped granting India special trade privileges by taking away the Generalized System of Preferences (GSP) program, and India has responded by enforcing more tariffs of its own. The George W. Bush-SMU Economic Growth Initiative Director Matthew Rooney breaks down the trade conflict: For more information on trade groups and the global economy, visit www.bushcenter.org/scorecard.
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