Buchanan has it right

Edward Luttwak on the merits of protectionism

Pat Buchanan’s season of success was brief, but respectable opinion in America and beyond is still shell-shocked by the appeal of his heretical economic ideas (protectionism to lift wages!). For nowadays there is only one economic orthodoxy, taught and proclaimed by almost all academic economists, happily celebrated by Wall Street and corporate chiefs, and fully accepted by Democrats, by Republicans and by most European political parties.

Contra Buchanan’s pessimism, the ruling orthodoxy holds that the present workings of the US economy are a huge success, propelled above all by the phenomenal breakthroughs of the ‘New Titans’ of the information age: the legendary twins Microsoft and Intel, and their lesser emulators – Apple, Novell, Cisco, Oracle, Bay Net, Sun Microsystems, Sybase, Adobe Systems, Amgen, Cirrus, Informix, Intuit, Cordis, Am.Online, Autodesk, MBC Soft, Picturetel, Peoplesoft and more.

Most of them did not even exist twenty years ago. Today, the combined value of their shares, albeit fluctuating, greatly exceeds that of the unfashionable old-style giants of manufacturing: General Motors, Ford, Dupont and Kodak. In the course of rising from very little to their present heights, the New Titans have made several billionaires and hundreds of millionaires among early investors, while very substantially increasing the wealth of an even larger number of shareholders and pension-plan members. That makes for a great deal of optimism.

It turns out that every principle of the ruling orthodoxy is defended by citing the success of the New Titans. Free trade, or more precisely the continuing US effort to ‘globalise’ the world economy by negotiating away trade, investment and licensing barriers of all kinds, is justified above all by citing the success of American high-technology exports in general and of software in particular. By contrast, the net loss of 1.4 million jobs (according to the very lowest estimate of free-trade enthusiasts) caused by the chronic excess of US imports over exports is held to be of small account, because these are said to be little more than dead-end jobs, in declining industries.

Deregulation, most recently of telecommunications, is similarly justified by the wonderful opportunities it opens up for the New Titans, as well as for the new-style ‘lean and mean’ telephone and cable television companies that promise to open up the electronic highway, starting with Internet for all. In the process, the existing regional telephone companies, ‘the Baby Bells’, will be swept away unless they become drastically more efficient. At present they are still monopolies regulated by local boards, and as such are sufficiently protected from competition to be steady, well-paying employers and generous supporters of all manner of community activities – to please the local-worthy regulators of course. But the ruling orthodoxy sees no merit in anything that impedes efficiency, implicitly taking it for granted that society exists to serve the economy, and not the other way around.

True, the Secretary of Labour Robert Reich and other members of the Clinton Administration have rather suddenly taken to criticising the mass firings on the part of major corporations in general and of AT & T in particular (40,000 initially budgeted for, later reduced to 18,000). But at the same time, the Clinton Administration enthusiastically advocated the Telecommunications Deregulation and Competition Act of 1995, which allows regional telephone companies, long-distance carriers (AT & T, MCI, Sprint and more) and cable television companies alike to offer local, long-distance television and other data over wires without restriction. It will take some time for the long-distance carriers to run wires into homes and offices, but the networks of the cable-television companies are already in place, and can immediately carry telephone traffic as well. The regional telephone companies will therefore have to do exactly what AT & T is doing – that is, fire tens of thousands of employees to become more automated and more efficient. It is a classic case of false consciousness: the Clinton Administration is deploring with much sentimental verbiage the very consequences it is striving to bring about.

Above all, the success of the New Titans is regularly invoked to argue that no real harm is being inflicted by corporate ‘downsizing’ – the drastic reduction in the number of administrative and clerical employees, mainly because of software-driven automation. The latter, it is pointed out, generates its own employment: the software has to be written, customised applications prepared, computers and their ancillaries manufactured and maintained. According to the ruling orthodoxy, readily echoed by all and sundry in America and beyond (including one letter-writing LRB reader), downsizing simply means that some Americans are being forced to move to better jobs – GM may fire you but Microsoft will hire you, and Microsoft jobs are better.

Buchanan is of course in the wrong party to advance the interests of America’s lower-paid employees and unpaid ex-employees. He is also contaminated by extreme-right associations and past utterances which have been judged to be anti-semitic not merely by the Anti-Defamation League but by the right-wing guru himself, Bill Buckley, founder of the National Review. As Churchill told one of Hitler’s minions by way of advice to pass on to his master, anti-semitism is ‘a good starter but a bad sticker’ – Buchanan’s fate at the hands of the media shows how sound that advice was.

Buchanan’s exuberant delight in offending as many people as possible does not, however, mean that his political economy is off the wall. It is enough to look at the employment rolls of the New Titans, as opposed to their share values, to see that his pessimism is right and the ruling orthodoxy all wrong. Microsoft and Intel, so huge in Wall Street (they are worth much more than GM, still the world’s largest manufacturing enterprise), had a combined total of 48,100 employees at the last count, as opposed to 325,300 employed by Ford, more than half of them in the United States. In fact all the New Titans listed above have a combined grand total of some 128,000 employees, less than half the number employed by Ford alone worldwide, one third fewer than those employed by Ford in the United States.

Of course there are many other New Titans outside the computer and software industry who have also risen from nothing, including such diverse companies as Southwest Airlines, Nike shoes, Charles Schwab the mega-broker, Genetech and other bio-techs, computer hardware manufacturers such as Seagate, Compaq and more. Still, all of them together do not employ as many Americans as Ford alone, let alone General Motors (721,000 at the last count, half in the United States).

The consequences of these simple numbers are enormous. What would happen to the United States if Bill Gates and Al Gore’s vision of an all high-tech economy were to be realised? The Dow-Jones Index would no doubt reach 10,000, or perhaps 20,000, making more billionaires and more thousands of millionaires. In the meantime, with the replacement of GM, Ford, Kodak (132,600 employees), Dupont (125,000) and all other old-style, slow-growing, medium-tech manufacturers by New Titans, the total number of well-paid jobs in the US economy would decline to a fraction of present levels.

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