Glad I Didn’t Say That! What Could Have Gone Wrong with Offshoring?

Tags

Clinton administration, coronarivus #CCP Virus, COVID 19, Glad I Didn't Say That!, globalization, health security, Larry Summers, manufacturing, Obama administration, offshoring, supply chain, Trade, Wuhan virus

“Why can’t the greatest economy in the history of the world produce swabs, face masks and ventilators in adequate supply?”

–Former Clinton administration Treasury Secretary and Obama administration top White House economic adviser Larry Summers, March 21, 2020

“There are those today who would resist the process of international integration; that is a prescription for a more contentious and less prosperous world. We should not oppose offshoring or outsourcing.”

–Former Clinton administration Treasury Secretary and Obama administration top White House economic adviser Larry Summers, June, 2011

(Sources: Summers Twitter feed, https://twitter.com/LHSummers/status/1241329121768230912 and “At World BPO/ITO Forum 2011, iRise CEO Stresses Need for Transformational Thinking Among CIOs,” Business Wire, August 25, 2011, https://www.businesswire.com/news/home/20110825006115/en/World-BPOITO-Forum-2011-iRise-CEO-Stresses. Specia acknowledgements: John Greener and Mike Cernovich)

Those Stubborn Facts: Why Health Security Should “Trump” Free Trade for Americans

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active pharmaceutical ingredients, CCP Virus, China, coronavirus, COVID 19, European Union, exports, free trade, globalization, health security, India, medical devices, pandemic, pharmaceuticals, surgical equipment, Those Stubborn Facts, Trade

“[White House Office of Manufacturing and Trade Policy Director Peter] Navarro raised a lot of eyebrows when he warned that [international trade] fights over [healthcare-related goods] loomed and told Fox Business Network on Feb. 23: ‘People need to understand in crises like this, we have no allies.’ But what then seemed potentially alarmist now looks like foresight.”

– Bloomberg News, March 16, 2020

Number of countries that have curbed exports of healthcare-related goods*: 38**

 

*Includes pharmaceuticals, active pharmaceutical ingredients, medical devices, surgical appliances and supplies

**India, China, India, Taiwan, Indonesia, Belarus, Malaysia, Thailand, South Korea, Russia, United Kingdom, and the 27 members of the European Union

 

(Sources: “Export Wars Erupt as Officials Curb Supplies to Battle Virus,” by Shawn Donnan, Bloomberg News, March 16, 2020, https://www.bloomberg.com/news/articles/2020-03-16/trade-war-latest-welcome-to-the-coronavirus-export-wars-of-2020-k7uf1k01; “The Global Mask Shortage May Get Much Worse,” by K Oanh Ha, Ibid., March 10, 2020, https://www.bloomberg.com/news/articles/2020-03-10/the-global-mask-shortage-may-be-about-to-get-much-worse; “Export Trade News,” Foreign Trade Online [latest daily edition], https://www.foreign-trade.com/export_trade.htm; “The World Needs Masks. China Makes Them – But Has Been Hoarding Them,” by Keith Bradsher and Liz Alderman, The New York Times, March 16, 2020, https://www.nytimes.com/2020/03/13/business/masks-china-coronavirus.html; and “UK bans parallel export of two COVID-19 treatment candidates to protect national supply,” by Janet Beal, “Life Sciences,” IHS Markit, February 26, 2020, https://ihsmarkit.com/research-analysis/uk-bans-parallel-export-of-two-covid19-treatment-candidates.html)

Making News: Back on National Radio Tonight Talking China, the U.S., & the Wuhan Virus…& More!

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Breitbart News Tonight, China, conservatives, coronavirus, COVID 19, globalization, Gordon G. Chang, health security, Making News, manufacturing, medical devices, offshoring, pandemics, pharmaceuticals, Republicans, The Epoch Times, The John Batchelor Show, Wuhan virus

I’m pleased to announce that I’m scheduled to return to John Batchelor’s nationally syndicated radio show tonight to talk about U.S.-China relations “in a time of Wuhan Virus.”  (Spoiler alert:  They’re not good.  And barring a sea change in China’s behavior, they shouldn’t be.)

The segment, which will also feature co-host Gordon G. Chang, is slated to start at 10:15 PM EST and you can listen live here.  Can’t tune in tonight?  I’ll be posting a link to the podcast as soon as one’s available.

Speaking of podcasts, here’s one of a “Breitbart News Tonight” interview from last Friday night on the economics and politics of this coronavirus era, with a special focus on the implications for small-government Republicans and conservatives.  Click here and scroll down till you see my name.  Moreover, if you’re not into podcasts, you can read a fine summary at this link.  FYI, I don’t use the phrase “extinction event” often.

Finally, my views were covered recently in two Epoch Times articles.  In the first, from March 3, I emphasized the importance of trade and related economic policies needed to ensure that the United States regains its ability to supply its own pharmaceutical and medical device needs.  In the second, I similarly observed that the very idea of globalizing and offshoring the domestic manufacturing base has become more urgent than ever to challenge given emerging threats like pandemics.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: When Washington Slept on America’s Dangerous Dependency on Foreign Healthcare Products

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active pharmaceutical ingredients, Bureau of Industry and Security, China, China virus, Commerce Department, coronavirus, COVID 19, globalization, health security, healthcare, India, medical devices, national security, Office of Technology Evaluation, offshoring, pharmaceuticals, supply chains, surgical equipment, Trade, {What's Left of) Our Economy

Last week I wrote that no one in American politics, in either party, deserves blame for failing to anticipate the China Virus outbreak (in the sense of being ready for a genuine pandemic), and especially the Trump administration’s flawed response to its spread within the United States (as opposed to its timely decision on January 31 to start curbing inbound travel from overseas – initially from China). 

But there’s one big aspect of coronavirus-related public policy where potentially calamitous and avoidable mistakes have been made, and where identifying responsibility is essential (largely to prevent repetition). That’s the growth of America’s dependence on pharmaceuticals, their active ingredients, and other healthcare-related goods from foreign sources, especially from China.

It should have been obvious long before the virus broke out in Wuhan (at least as far as we know) that health security is national security, and that the blithe approval of trade and related policies that encouraged the offshoring of production in this crucial sector was as dangerous as the offshoring of crucial defense and defense-related (because so many inputs to weapons and platforms aren’t weapons themselves) products. Even louder alarm bells should have sounded once it became clear that a leading offshoring destination was China – a dictatorship that has challenged U.S. national security interests long before the rise of current leader Xi Jinping, and whose role in medical supply chains inevitably created the threat of supply cutoffs (as has recently been threatened in the Chinese government-controlled press).

And indeed American policymakers had all the evidence they needed as early as 2011. That’s when a small office at the Commerce Department called the Bureau of Industry and Security (BIS) issued a report called – yup – “Reliance on Foreign Sourcing in the Healthcare and Pubic Health (HPH) Sector: Pharmaceuticals, Medical Devices, and Surgical Equipment.”

For many years, BIS’ Office of Technology Evaluation (OTE) has been issuing reports on sectors of the U.S. defense industry and other portions of the economy critical to the nation’s security and their use of foreign parts, components, materials, and other inputs whose availability shouldn’t be taken for granted. And fortunately, the Office and the various acts of Congress that have defined its mission have long understood that, as suggested above, national security-related industries are by no means restricted to those that turn out products that go bang and boom.

Notably, the study was requested by the Obama administration’s Department of Homeland Security (DHS), which shows commendable foresight. And the main results make jaw-dropping reading today:

>“There is a significant amount of U.S.-based manufacturing for critical healthcare-related commodities.” At the same time, “There is…a very high degree of foreign sourcing and dependency for components, materials, and finished products.”

>“Exposure to supply disruptions is widespread, but many respondents consider it a cost of doing business in the healthcare industry.”

>As a result, “Only 34 percent of respondents are taking steps to reduce their exposure to foreign sourcing and dependency issues.”

>When it comes to the chemical ingredients for drugs, where heavy China dependency has attracted so much attention today, in 2011, pharmaceutical companies reported “difficulty limiting their exposure to foreign dependencies primarily because most of the APIs [active pharmaceutical ingredients] are produced outside the United States.”

>Medical device producers stated that they were “vulnerable primarily due to their reliance on other countries for electronic parts.” Japan was the main concern, due at least in part to the earthquake that year that disrupted many industries’ supply chains. But China has become an even more important supplier since then.

Sadly, however, the record also demonstrates that once the findings came in, no serious follow-through was undertaken.

OTE surveyed 161 companies – 70 pharmaceutical producers, 75 manufacturers of medical devices and surgical equipment, and 16 companies that turned out both kinds of products. Roughly three fourths of these companies were headquartered in the United States and roughly one-fourth were foreign owned.

All told, these firms produced 868 individual pharmaceuticals and 833 kinds of medical devices or surgical equipment. Of these, in turn, 290 pharmaceuticals and 128 types of devices and equipment were deemed by OTE “critical to effective healthcare services in the United States,” meaning “needed in various emergency scenarios.” The bureau also looked into the chemical ingredients and parts and components comprising these products.

As for the specific information sought, here it is:

“Survey respondents were asked to identify the pharmaceuticals and medical devices/surgical equipment they manufactured, integrated/assembled, and/or sold for use in the United States. For each product area selected, companies were then asked to provide the top three company proprietary products they make and the location of manufacture. Finally, companies identified, to the best of their knowledge, whether they were the sole U.S.-based manufacturer, sole global manufacturer, or not the sole manufacturer of each product.”

Some of the above results in greater detail:

More than 73 percent of the total surveyed companies depended on suppliers located abroad for at least one critical component, manufacturing material, or actual finished good. And the average number of such foreign-sourced goods per company surveyed was 11.4. Seventy-nine percent of pharmaceutical firms surveyed reported themselves in this situation versus 63.7 percent of the device and equipment manufacturers, and the average number of foreign-sourced products was 11.4 for the drug companies versus 9.8 for their device and equipment manufacturers.

Interestingly, even at this point, China loomed pretty large large in the picture at that time – especially for medical devices and surgical equipment. Its entities represented 13.8 percent of the total number of foreign suppliers to U.S.-based producers. For pharmaceutical companies, they accounted for 9.1 percent – less than leader Italy (15.7 percent), India (12.8 percent), and Germany (10.6 percent). Not that this result should be especially comforting, as India – a major global producer of generic drugs – has recently announced to restrict exports because it’s experiencing difficulty getting chemicals from China and (surprise?) wants to make sure it can provide for its own population.

The OTE survey, in other words, found that, in 2011, healthcare products companies operating in the United States relied on a diverse global supply chain. But significant vulnerabilities were reported, too. Principally, for pharmaceuticals, “there was no U.S.-based source for at least 65.5 percent of [total goods] identified by survey respondents.” And for medical devices and surgical equipment, the figure was at least 60.5 percent. More troublingly, in the device and equipment sectors, the greatest dependencies tended to be in complex products.

Moreover, when thinking about the safety of imported healthcare goods, keep in mind BIS’ finding that only 60.3 percent of the companies in total could identify the suppliers of their suppliers.

Nor were significant supply disruptions unknown by healthcare products companies. Thirty percent of these businesses reported experiencing at least one of these events between 2007 and 2010, 40 percent of these came from foreign suppliers, and 17.5 percent came from China – the biggest share for any single country. Both domestic- and foreign-origin disruptions lasted an average of 155 days. Nonetheless, these figures are surely way too low, as only 18.3 percent of responding companies said they tracked foreign supply disruptions.

Even so, the study oddly found that “Only 16.6 percent of companies foresee a risk of supply disruptions from outside of the United States” but that 29 percent “believed their company was vulnerable to serious and/or prolonged supply chain disruptions from events or dependencies outside the United States.” For pharmaceuticals, the top concern again was lack of API availability domestically.”

OTE made several policy recommendations to strengthen America’s health security. For example, various major relevant federal agencies should “further examine [the] survey data to prioritize the foreign sourcing and dependencies that could have the greatest impact on the healthcare supply chain in an emergency situation.”

In addition, these agencies, “in coordination with DHS and the Department of Commerce, should assess whether the use of Defense Production Act authorities, such as the Defense Priorities and Allocations System (DPAS), could provide the ability to rapidly expand or surge capacity of U.S.-based pharmaceutical and medical device/surgical equipment facilities to meet demand in an emergency situation.” As made clear, however, by the continued sky-high levels of the healthcare industry’s China and other foreign dependencies, the problem was promptly ignored.  

Such measures, along with many others in the trade, tax, and regulatory fields will no doubt be crucial to rebuilding the kind of domestic healthcare industry so many Americans and even their leaders finally recognize is essential. But if the nation really is seriously behind the idea that health security is national security, it’s going to need updated detailed information on foreign dependencies. In other words, time to put the OTE to work again.

(What’s Left of) Our Economy: What Washington Doesn’t Know About U.S. China Drug Dependence Can Literally Kill Us

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active pharmaceutical ingredients, antibiotics, chemicals, China, China virus, coronavirus, COVID 19, FDA, Food and Drug Administration, generic drugs, globalization, Hastings Center, Katherine Eban, medicines, pharmaceuticals, public health, Rosemary Gibson, supply chain, U.S-China Economic and Security Review Commission, {What's Left of) Our Economy

It’s bad enough, as widely reported, that as the coronavirus has begun spreading rapidly beyond China, the United States finds itself reliant on the People’s Republic for a wide variety of medicines and, just as important, for the chemical building blocks of those medicines. It’s at least as bad, and much less widely reported, that the U.S. government still doesn’t know the exact extent of this dependence, and still uses an inspection system for checking the safety of these Chinese inputs that looks as leaky as the proverbial sieve.

Even worse, as I see it, these shortcomings have been way out in the open since at least last July, when the official U.S.-China Economic and Security Review Commission held a hearing on the matter.

Anyone with any doubts about how dangerous this dependency on China has become should check out the testimony of Rosemary Gibson of The Hastings Center, one of the world’s leading research institutes focusing on healthcare and healthcare and broader scientific ethics issues. Gibson has been investigating this situation for years, months before the corona virus outbreak, made the following claims at the Commission session to justify her conclusion that “The nation’s health security is in jeopardy”:

>”The U.S. can no longer make penicillin. The last U.S. penicillin fermentation plant closed in 2004. Industry data reveal that Chinese companies formed a cartel, colluded to sell product on the global market at below market price, and drove all U.S. European, and Indian producers out of business. Once they gained dominant global market share, prices increased.”

>”The U.S. can no longer make generic antibiotics. Because the U.S. has allowed the industrial base to wither, the U.S. cannot produce generic antibiotics for children’s ear infections, strep throat, pneumonia, urinary tract infections, sexually-transmitted diseases, Lyme disease, superbugs and other infections that are threats to human life. We cannot make the generic antibiotics for anthrax exposure. After the anthrax attacks on Capitol Hill and elsewhere in 2001, the U.S. government turned to a European company to buy 20 million doses of the recommended treatment for anthrax exposure, doxycycline. That company had to buy the chemical starting material from China. What if China were the anthrax attacker?”

>”Beyond antibiotics, the U.S. industrial base for generic drug manufacturing is on the brink of collapse. Generic drugs are 90 percent of the medicines Americans take. Examples of generic drugs made in China by domestic companies and sold in the United States include: antibiotics, anti-depressants, birth control pills, chemotherapy for cancer treatment for children and adults, medicine for Alzheimer’s, HIV/AIDS, diabetes, Parkinson’s, and epilepsy, to name a few. If past performance is indicative of future performance, China’s generic drug companies will engage in cartel formation and predatory pricing, and drive out U.S. and other western generic companies.”

>[T]he pharmaceutical and chemical industry’s successful requests to the U.S. Trade Representative not to impose tariffs on medicinal products made in China corroborate that much of the US industrial base, and our self-sufficiency in manufacturing products essential for life, has collapsed.”

And Gibson categorically stated that “The FDA [U.S. Food and Drug Administration] cannot fix the underlying cause of the proliferation of contaminated and potentially lethal medicines in the legal supply of America’s medicines.”

One reason for the FDA’s ineffectiveness is clearly a lack of good data. Not that the challenge of conducting adequate inspections is easy. Jennifer Bouey of the RAND Corporation, another leading think tank, told that Commission that on top of China’s foreign affiliated plants, “Researchers estimate there are 5,300 to 7,000 local manufacturers, each with a small share of the Chinese domestic market.”

Mark Abdoo of the FDA itself acknowledged to the Commission that because of “remaining gaps” in its data, the agency lacks “visibility of all Chinese manufacturers that produce drugs or active pharmaceutical ingredients of drugs that are ultimately shipped to the United States.”

Abdoo added that on top of drug building blocks (called “active pharmaceutical ingredients,” or APIs) that the FDA knows come into the U.S. market from China, such China-produced ingredients “also come to the U.S. as part of finished drug products manufactured in other countries, for example, India. Therefore, the percentage of APIs produced by China for the United States marketplace is likely underrepresented by our numbers as China is a major supplier of APIs for other countries.”

It’s worth mentioning at this point that relying on the main federal government system for slicing and dicing the U.S. economy – the North American Industry Classification System (NAICS) – can produce a highly misleading picture of American imports of drugs and their chemical ingredients from China.

For example, according to the NAICS data, although American purchases of finished drugs and their ingredients are up astronomically in absolute terms over the last 20 years, they still account for only 1.34 percent of such imports from the world as a whole. Similar trends have unfolded in “non-diagnostic biological products,” which are defined as “vaccines, toxoids, blood fractions, and culture media of plant or animal origin.” Despite soaring literally 80-fold from 1999 to 2019, imports of these goods equal only 0.34 percent of all U.S. imports.

But separate testimony to the Commission by journalist Katherine Eban, drawing on her recent probe of the foreign factories that supply so much of the U.S. drug market, identified numerous flaws in inspection procedures and broader policies that are much more easily corrected – and indeed, should have never been allowed to emerge in the first place. For example:

>”Most of the FDA’s investigators who are sent to China do not speak the language. They can’t read the manufacturing records. The FDA does not always provide independent translators. Instead, the companies provide translators who, more often than not, are company salesmen. Sometimes, FDA investigators simply give plants a pass, deeming them to be No Action Indicated because they have no way to tell otherwise. The investigators also can’t read street signs, which make them vulnerable to wild manipulations. Companies steer them to phony ‘show’ plants, where everything looks compliant, but the companies aren’t manufacturing there. Sometimes a group of companies pool their resources and invest in the same “show” factory, so that different FDA inspectors return to the same plant at different times, each one thinking they are inspecting a different facility.”

>”In the United States, in order to inspect drug plants, FDA investigators simply show up unannounced and stay as long as is needed. But for overseas inspections—due to the complex logistics of getting visas and ensuring access to the plant – the FDA has chosen to announce its inspections in advance. Overseas drug plants typically ‘invite’ the FDA to inspect and the agency accepts. Plant officials serve as hosts to the visiting FDA investigators, who become their guests. It is not unusual for manufacturing plants to arrange local travel for FDA investigators. This system has allowed manufacturing plants to ‘stage’ inspections, as one FDA investigator put it, and conceal evidence of data fabrication.”

>”According to the FDA’s own data, which I obtained, from 2013 to 2018, out of 864 inspections in China that FDA investigators recommended as Official Action Indicated, FDA officials downgraded 78 of those [that is recommended a milder response from Washington]. By contrast, in the same time period, out of 11,642 inspections that FDA investigators conducted in the U.S. and recommended as Official Action Indicated, only one inspection was downgraded in that time. This reflects the FDA’s willingness to give foreign plants, particularly in China, an opportunity to reform without sanctions.”

>The agency appears to discourage talented staff to deploy in China and elsewhere abroad because of “a lack of clear career progression and promotion opportunities. Right now, those who serve overseas often return to the FDA’s U.S. headquarters without a guaranteed job, and sometimes have to accept demotions.”

Alert readers will note that although most of the problems mentioned here are rooted in pre-Trump policies and practices, they’ve continued into the Trump era. All Americans should demand that the coronavirus outbreak be regarded by Washington as the most urgent possible wake-up call.

Incidentally, Rosemary Gibson’s latest findings are contained in her recent book, China Rx.  Katherine Eban’s are available in her recent book, Bottle of Lies. 

Im-Politic: Have Americans Got Family Policy All Wrong?

Tags

David Brooks, education, extended family, families, globalization, Im-Politic, Immigration, nuclear family, social policy, The Atlantic, women

David Brooks has scored a four-bagger with his new Atlantic article on whether the recent American focus on maintaining and fortifying the nuclear family has been such a hot idea. He’s powerfully challenged the conventional wisdom about a long-time social and cultural institution and public policy goal. He’s taught readers fascinating and important lessons about American social history. He’s spotlighted a host of recent developments and trends on this crucial front. And (I guess this is just my own personal bag) in the process, he’s reminded me of what a clueless snob I can be in jumping to conclusions.

To continue momentarily on a personal note, I was staring in disbelief as I wrote most of the above, for Brooks, a New York Times columnist, has never struck me as much more than the kind of establishment conservative who long dominated the Republican Party and the right half of the mainstream media, and who’s spent the last three years bitterly inveighing against the rise of Trump-ian populism – without offering any useful suggestions as to what might replace it.

It’s true that Brooks had also made quite a name for himself as a social and cultural commentator, but I never paid much attention to these writings. If his new Atlantic article is any indication, that was a major mistake.

I’m not entirely sure I agree with Brooks’ main policy argument – that it’s no longer possible to restore the nuclear family’s primacy in American society, because that prominence only emerged because of overall national conditions in the post-World War II United States that simply can’t be replicated. In particular, I still strongly doubt that the developments that have weakened the nuclear family were inevitable, or were all inevitable, and are therefore irreversible.

I’m thinking of indiscriminate economic globalization and Open Borders-friendly mass immigration policies that have destroyed generations of middle class jobs and the incomes and economic opportunity they create; welfare policies that surely discouraged to some degree the maintenance, especially in the African-American community, of traditional two-parent families; the ever-mounting incompetence of the nation’s public primary and secondary schools; and a values transition that (thankfully) fostered greater social and cultural freedom and diversity, but that also unmistakably encouraged individualism, pointless exhibitionism, and the insistence on instant gratification to run riot, and all but scorned the idea of commonly accepted norms, self-restraint, and short-term sacrifice for long-term gain.

In other words, maybe the dominance of the nuclear family nurtured much of the economic progress and prosperity in particular that characterized the 1950s and 1960s, rather than the other way around.

But what I’m thinking mainly about today aren’t those big policy and (inevitably politicized) questions, but about some of the forms of extended families that Brooks mentioned prominently, and that I had completely forgotten about. Not that I’m the only one. But this blind spot recently led me in particular to ridicule someone and his outlook on life (not to his face, but to friends and relatives) who deserved much better.

It came at a wedding during which at one point, the father of the groom stood up to give his toast to the happy couple, and began waxing nostalgic (as parents at these moments understandably do) about the good old days of his son’s youth. He was anything but silver-tongued, but one point he made struck me at the time as especially absurd and revealingly parochial. Back then, he pointed out, so many of the aunts and uncles and cousins lived on the same block, and we saw each other all the time. But now, most of the family has spread out as far as – and he named a town a whole two towns, and only a few miles, away.

I found this hilariously small-minded, and missed few opportunities to bring up his remarks and what the volumes they allegedly and unflatteringly spoke about this kind of crimped perspective (which also characterized many attendees at the affair).

But as Brooks’ article pointed out, these types of extended families have been the norm for much of American history, and boasted and nurtured many virtues that sadly are in short supply today – like community and mutual support and the spread of constructive social and personal norms and values.

So as I was reading his piece, I began to think that yes, there’s a big difference between being able to spontaneously run into relatives just by stepping out the front door and seeing them on the front porch across the street, or at the supermarket, and needing to take a short drive two towns over in order to visit.

And I began thinking about the history of both sides of my own childhood nuclear family. My father’s father came to America from Lithuania and was aided almost as soon as he stepped off the boat not only by various Jewish-American charities, but by relatives that preceded him and by an organization comprised of other immigrants from the same town. He remained active in their affairs for the next five or six decades.

My mother’s parents lived in a small apartment building in the south-ish Bronx that was full of related families. I spent the first nine years of my own life in a small apartment building in Flushing, Queens (New York City) that was dominated by two or three closely-related families. They not only socialized constantly; they took summer vacations with each other at the same bungalow colony a little ways upstate.

So most of my playmates were each other’s cousins. Moreover, I also went to grade school with and hung out with a bunch of Irish-American kids from across the street who were related as well. Meanwhile, when we were very young, the various mothers took their turns walking us the six blocks to and from P.S. 20. And at about the same time, when my brother was born, we moved upstairs to a larger apartment in the same building and my mother’s mother moved into our old place. I.e., instant babysitter!

These networks, by the way, didn’t vanish even in the suburban north shore of Long Island to which my family moved in the early 1960s. Even though single family houses had replaced apartment buildings, lots of our neighbors in our community were very chummy, and have remained so. Ditto for their kids. (My father was kind of standoffish for various reasons, but the sheer number of chuldren for my brother and I to play with and the advantages of car-pooling kept us at least in the outer reaches of these circles.)

Nor, apparently, was this community unique. I was very moved about a year ago to read a Facebook post from an alum of my high school (who I didn’t know but have connected with since) to another alum (who I didn’t know either and haven’t connected with) fondly remembering the days when all the families on their block held cookouts and other backyard parties together and went on outings and looked after each other’s kids.

And according to Brooks, these patterns and structures were common during the 1950s and 1960s:

“[N]uclear families in this era were much more connected to other nuclear families than they are today—constituting a “modified extended family,” as the sociologist Eugene Litwak calls it, ‘a coalition of nuclear families in a state of mutual dependence.’ Even as late as the 1950s, before television and air-conditioning had fully caught on, people continued to live on one another’s front porches and were part of one another’s lives. Friends felt free to discipline one another’s children.”

Brooks isn’t indiscriminately nostalgic for extended families, and rightly notes major drawbacks:

“[T]hey can…be exhausting and stifling. They allow little privacy; you are forced to be in daily intimate contact with people you didn’t choose. There’s more stability but less mobility. Family bonds are thicker, but individual choice is diminished. You have less space to make your own way in life.”

And no small matter: “[M]ost women were relegated to the home. Many corporations, well into the mid-20th century, barred married women from employment: Companies would hire single women, but if those women got married, they would have to quit. Demeaning and disempowering treatment of women was rampant. Women spent enormous numbers of hours trapped inside the home under the headship of their husband, raising children.”

Further, these extended families do tend to encourage parochialism that can too easily degenerate into outright ignorance of, indifference to, and even hostility toward the outside world, or certain major portions of it.

Is some kind of middle ground possible? Brooks insists that that train has left the station:

“Today, only a minority of American households are traditional two-parent nuclear families and only one-third of American individuals live in this kind of family. That 1950–65 window was not normal.”

Again, I’m skeptical about abject pessimism – just as I am about Brooks’ (cautious) optimism about the possibility of building a healthy society with many more non-nuclear families and many fewer nuclear families than even exist today. More important for now, though, is recognizing Brooks’ stunning achievement – which will force any but the completely closed-minded to start thinking.

(What’s Left of) Our Economy: Globalization and Butter Cookies

Tags

China, consumers, country of origin labels, food, free trade, globalization, Indonesia, Netherlands, Trade, {What's Left of) Our Economy

So there I was sitting on the living room couch watching some TV after the big Thanksgiving meal with my some of my wife’s family, and of course I was eating again – this time some “premium butter cookies” from a big, brightly colored tin container. Why should that be remotely blog-worthy?

Here’s why. If you’re a cookie aficionado like me, when you read terms like “butter cookies” and “big, brightly colored tin container” chances are you think the product comes from Denmark. And in fact, you’d be even more likely to come to that conclusion upon seeing that the brand is “Danisa” and that the cookies come from an “original recipe of Danish Specialty Foods APS.” The cover is topped by a European-type monarch’s crown, too.

Imagine my wife’s surprise, then, when she found out (after she came home with them from the supermarket thinking that they’d be a terrific gift for the relatives of Danish descent we saw today) that they’re a “Product of Indonesia.” And despite my decades of work studying the globalization of production (including food manufacturing) and other economic activity, the cookies’ origins threw me for a loop, too – for two reasons. First, I wasn’t aware that Indonesia was such a center of cookie production excellence. And second, Indonesia (as opposed to other very low-cost countries) might have made some sense had this enormous Asian archipelago country ever been controlled by Denmark. But it wasn’t. Its former colonial masters were the Dutch – who are known for some pretty terrific cookies themselves (but unfortunately were notably cruel imperialists).

Upon further investigation, however, I discovered that Indonesia has formidable cookie-making capabilities. Indeed, although Danish Specialty Foods APS is indeed a Copenhagen-based business whose website says it “specializes in Danish butter cookies and owns the right to the brand, Danisa, worldwide,” it also operates an Indonesian facility owned by PT Mayora Indah Tbk.

That Indonesian food conglomerate says its founder “started baking its first biscuits out of a home kitchen in 1948” and has since “grown to become a recognized global company in the Fast Moving Consumer Goods Industry.” And it’s big into the “biscuit, candy, wafer, chocolate, coffee, instant food, beverage and cereal” spaces.

More surprising still: Indonesia has quite the reputation, at least in Asia, for butter cookies in particular. And I’ve got to tell you – these cookies taste just as good as any I’ve had (most of which I assume have come from Denmark, but now I can’t really be sure).

So maybe the doctrine of comparative advantage – the principal economic theory supposedly explaining the superiority of the freest possible global trade over all other trade alternatives – is at work here after all? I suppose. At the same time, the same discipline of mainstream economics that lauds free trade also holds that economies at all levels work best when consumers have the most information available about the products and services they’re examining.

To be clear, American law requires no country-of-origin labels for processed food products like cookies.  So the two above companies deserve some credit for offering any “Product of Indonesia” identification at all.  At the same time, this label is found on the bottom of the butter cookie tin in type tinier than I’ve ever seen aside from some jewelry inscriptions.

Would my wife have bought the cookies had the brand been “Mayora” rather than “Danisa”? Had the tin cover pictured, say, a Sumatran rhino? Had “Product of Indonesia” been displayed prominently on the lid? Probably not, since she was looking for a gift from Denmark. Might she have picked some up if she just had a hankering for butter cookies, or thought I might? Maybe.

I’m still left

>wondering whether and if so why Denmark itself has lost its butter cookie-making chops – or at least its ability to make the products competitively;

>and thinking that if a company is willing to make a product associated with a country in a country that’s not associated with that country, it shouldn’t make that product’s real origin as inconspicuous as the law allows.

And let’s not forget a final twist to the story: Danish Specialty Foods announced on its website that it was planning to open a factory in China. Of course, it turns out there’s a long butter cookie-making tradition there, too.

Making News: Speaking at a D.C. Conference Today on Antitrust and Trade Policy

Tags

antitrust, competition, free trade, globalization, Im-Politic, monopolies, monopoly, The American Conservative, The American Prospect, Trade

I’m pleased to announce that I’m scheduled to speak this morning at a conference in Washington, D.C. on the increasingly weird relationship between American trade policy and American antitrust policy.

The overall event focuses on the troubling rise of monopolies and oligopolies in general in the U.S. economy in recent decades, and is co-sponsored by The American Conservative and The American Prospect – two magazines pretty far apart on the political spectrum.  My own presentation will draw on my article earlier this year on the subject in the summer issue of American Affairs.  (Yes, yet another political publication!).

If you live in the D.C. area, the event will be taking place at the National Press Club downtown starting at 11 AM.  If not, I haven’t yet found anywhere where the conference can be seen live on-line.  But if I do before I actually mount the rostrum, I’ll try to send it out.  And of course, once a link to any video is posted, I’ll let you know ASAP.

In the meantime, wish me luck, and keep checking in with RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: Can Free Trade Nowadays Really Maximize Global Well-Being?

Tags

China, East Asia, economics, free markets, free trade, globalization, Trade, {What's Left of) Our Economy

As nearly every economist worth their salt can tell you, as far as their profession is concerned, the prime end goal of liberalizing global trade as completely as possible is maximizing the entire world’s economic well-being. And theoretical, purely economic criticisms of the freest possible global trade have been dominated by questioning whether efforts to achieve this goal have truly have kept this promise, or are capable of doing so.

I don’t mean to minimize the importance of this debate, or others focusing on related but distinctive issues bringing into play non-economic considerations – like whether trade and broader economic policies need to broaden their definition of well-being to include goals like increasing feelings of happiness and security, or like fighting climate change and other threats to the environment, or like preserving America’s national security, or like ensuring that the economic well-being being created is more equitably shared.

But these days, it seems that American policymakers in particular need to ask themselves a more fundamental question: Assuming the goal can be reached, is the greatest possible worldwide economic (that is, material) well-being actually a goal that the global trading system should be trying to reach? And all peoples and governments of good will, not simply the United States, have a vital stake in figuring out the right answer – especially if they place noteworthy value on free markets.

The presence of the word “governments” in the previous sentence points to a central complication that the welfare-maximizing enthusiasts seem to be missing.

Specifically, no one of good will could reasonably oppose maximizing the economic welfare of all the world’s individuals (assuming, of course, that whatever non-economic challenges caused by high growth – e.g., environmental threats – aren’t ignored).

But even leaving aside strategic and national security considerations, the organization of the world’s individuals into governments creates a big problem with this objective. Specifically, many of these governments have organized their national economies in turn around principles and practices that have nothing to do not only with free trade, but with free markets or any aspect of economic liberalism themselves – the idea that individuals and other economic actors (like businesses) have the right to make the (legal) economic choices they regard as serving their own best economic and/or non-economic interests.

China is the obvious example. Its system holds that, even though at a very local or micro level, individual and other actors (because of the point I’m about to make, I’ve always hesitated to use the word “businesses” or “companies” to describe any Chinese goods- or service-producing entities) can be permitted to act on their own impulses, any such economic decisions with broader effects should be made or be subject to the control of the state. And all resources related to the economy are ultimately accountable to the state as well.

There’s no legitimate doubt that freer trade has helped lift hundreds of millions of Chinese out of poverty, and of course contributed to the economic well-being of myriad non-Chinese individuals and businesses and other entities that sell to this huge, burgeoning market, the growing prosperity of Chinese individuals. But there can also be no legitimate doubt that this free trade has also greatly strengthened a Chinese government whose practices clearly amount to a broad rejection of free trade and the rest of free market thinking.

Until now, it’s been easy to argue that whatever Beijing’s interventionist record, freeing up trade between China and the rest of the globe has improved the world’s wealth on net, even though China may have been the greatest beneficiary, and even though workers in high-income countries (to cite one prominent example) may have paid an economic price on net. 

But all this wealth creation unquestionably has strengthened this command-and-control Chinese system, its global footprint, and its influence over the world economy. If you believe in the virtues of free markets, how can this kind of development possibly keep increasing overall world economic well-being over any significant period of time (as opposed to spurring the kinds of brief boom periods that tend to become busts)? And if it can (and statist China has been a big global economic player for many years now), then maybe it’s time to rethink faith in free markets to begin with?

Of course, it’s important to keep in mind a long-time standard explanation of how China’s economic rise can be squared with support for continual global trade liberalization. It’s the confidence that more and freer trade with China will promote a liberalization of China’s domestic economy that will inevitably loosen the state’s grip trade and other foreign economic policies. But as known to anyone who’s been following China issues in recent years, Beijing has been reasserting control over much of the paltry amount of economic activity that it had previously ceded. Moreover, this trend didn’t begin with current leader Xi Jinping. So at the very least, the optimists are now under a heavy burden of proof to show that continuing to free up trade with China, or even fighting Trump-ian American backsliding, will maximize global welfare indirectly, by fostering Chinese internal economic liberalization.

Given China’s immense size, a China exception to the trade-spurring-welfare-maximization claim would be crucial enough. But it’s not just China. Economic intervention even dwarfing that practiced by the United States (including but hardly limited to the massive response to the financial crisis by the Bush and Obama administrations, and especially the still considerable stimulus supplied by the Federal Reserve) is common the world over. Gradations vary considerably, but fascinatingly, and perhaps revealingly, its strongest in East Asia, the region that, even leaving China out, almost everyone agrees has been the biggest net winner from trade liberalization going back to the early post-World War II period.

Unlike China, some of the leading East Asian beneficiaries of freer global trade, like Japan and South Korea, are U.S. security allies. But they conform with no reasonable definitions of free market systems, either. Should American policy, and the policies of other more market-oriented economies, support making these countries and their highly interventionist systems stronger, richer, and more influential as well?

China’s rise and increasingly anti-American actions on many fronts have prompted speculation that current bilateral tensions might eventually split today’s highly integrated global economy into separate, Cold War-like U.S.- and Chinese-dominated spheres. In fact, this may be a Trump administration goal. So far, this talk has emphasized the intertwined technology and national security reasons for pursuing this goal. But if free markets are all they’re cracked up to be, it may also be warranted for solely economic reasons.

(What’s Left of) Our Economy: How Many Strikes Does Paul Krugman Get on Trade?

Tags

automation, China, China shock, globalization, hyperglobalization, Jobs, manufacturing, manufacturing employment, offshoring, Paul M. Krugman, protectionism, tariffs, The New York Times, Trade, Trade Deficits, World Trade Organization, WTO, {What's Left of) Our Economy

Contrary to what many trade mavens must think, Paul Krugman’s recent confession that he (and nearly all of his economics colleagues) have seriously misjudged the impact of international trade on America’s manufacturing workers isn’t his first. At least twice before (see here and here), this Nobel Prize-winning economist and New York Times columnist has admitted in print that the economics profession’s consensus was wrong to brush off (and often scorn) claims that post-Cold War trade agreements and similar trade policy decisions would foster a combination of wholly new and unbeatable (but economically unsustainable) forms of import competition for domestic industry, and related job and production offshoring. (I’m among those he’s mauled in print.) And he’s granted that trade policy critics who predicted these consequences and kept pointing to evidence of their emergence were right. (See here and here.)

Still, Krugman’s latest mea culpa is noteworthy for two reasons. First, it undercuts another tenet of trade economics dogma held almost as strongly believed as the belief that trade expansion in all circumstances is a net contributor to human welfare – the related conviction that imbalances like trade deficits don’t matter (at worst).

In particular, the author acknowledges that the rapid and massive increase in America’s manufacturing-dominated goods trade deficit – especially from super-low cost economies (and offshoring destinations) like Mexico and especially China – occurred at exactly the same time that U.S. industrial employment cratered. And not coincidentally, the destruction began right about when China was admitted into the World Trade Organization (WTO). That mattered greatly because the Beijing subsidies and other predatory trade practices that benefited both foreign- and Chinese-owned producers in the PRC gained invaluable protection from unilateral U.S. responses.

How greatly? According to Krugman, the worsening of the trade deficit “reduced the share of manufacturing in GDP by around 1.5 percentage points, or more than 10%, which means that it explains more than half the roughly 20% decline in manufacturing employment between 1997 and 2005.” In other words, most of the manufacturing job loss during this crucial period – which is a particularly important one because that’s when critical masses of recently offshored factories got up and running and began exporting to the American market – should be blamed not on supposedly impersonal and clearly positive forces of progress like containerization in global shipping, and automation generally, but on actions by American leaders.

Not that Krugman abandons conventional trade economics completely. Specifically, he contends that trade deficits generally speaking are still ultimately unimportant, partly because countries can’t grow indefinitely indebted to the rest of the world and “must pay their way eventually.” The post mid-nineties surge in the manufacturing trade shortfall hammered domestic American manufacturing, he explains, only because it skyrocketed so suddenly.

Readers, however, will ask themselves how the United States can pay its way in the foreseeable future when manufacturing still dominates its lopsided goods trade flows. And they should note that although the damage to manufacturing could still prove temporary, it’s already lasted nearly twenty years, with no imminent end in sight until the past year. (See this post for one of my recent claims that President Trump’s trade policies are starting to bend the curve.)

Second, and following logically from the first point, Krugman continues to insist that protective tariffs should be avoided. Now his opposition focuses on his contention that the trade-related danger to U.S. manufacturing is coming to an end. The China shock in particular, which spearheaded the recent period of “hyperglobalization,” was “a one-time event” that’s already showing signs of ebbing.

But if Krugman was so offbase in evaluating trade’s economic effects, why should such predictions deserve any credibility? Off the top of my head, I can think of several reasons for ongoing concern. For example, China still has massive reserves of super cheap, U.S. wage-depressing labor in its interior and, counter-intuitively, in its national student body. In addition, the progress Beijing has fostered in capital- and technology-intensive industries means that these sectors of American manufacturing will keep facing the same kinds of low-wage (but high productivity) challenges that decimated less advanced, more labor-intensive U.S.-based sectors in previous decades. Moreover, if China does lose competitiveness even in these portions of manufacturing, there’s no shortage of bargain basement third world population giants – like India, Indonesia, and Brazil – that would be more than happy to receive more manufacturing investment from the United States and other high-income countries.

Everyone’s entitled to make mistakes – even know-it-alls like Krugman, who’s known for torching those disagreeing with him as know-nothings and liars. And Krugman deserves praise for owning up to his own mistakes. But it’s also appropriate to ask this question: Since Krugman first established his economic chops as a trade expert, and since he’s clearly been proven wrong about the leading trade-related controversy of our time, how many more strikes does he get?