The End of Free-Trade Globalization

Another leading indicator for potential change is that a few influential industry leaders are deviating from the standard corporate line. Jeffrey Immelt, CEO of General Electric, has called for the revitalization of manufacturing and suggests that the United States can become the leading exporter. "In some areas, we have outsourced too much," Immelt admitted in a speech last year to the Detroit Economic Club. "We plan to 'insource' capabilities like aviation component manufacturing and software development." GE's strategic shift sounds shocking (and unreal to union leaders) because the company has been the most notorious player in offshoring assembly lines and jobs. GE's 288,000 worldwide employment is now 53 percent foreign. The unions that represent workers at GE had more than 100,000 members there in the 1970s; they are now reduced to about 15,000.


A more persuasive break from past dogma was expressed by Andrew Grove, former CEO, now senior adviser, of Intel and a revered figure in Silicon Valley. Grove wrote a blunt confessional essay for Bloomberg titled "How to Make an American Job Before It's Too Late." The government, he urged, must intervene to end the offshoring game his semiconductor firm and other computer giants have played for many years. Tax the product of offshore labor, Grove proposed, and use the money to help other US companies scale up production at home. "If the result is a trade war, treat it like other wars-fight to win," he declared.


Grove took a shot at New York Times columnist and globalization cheerleader Thomas Friedman, who claims "innovation" will keep America on top. Not if US inventions do not lead to US production, Grove argued. Friedman and other free-traders, he said, don't seem to understand that the computer industry adheres to its own exit-to-China strategy for dumping US workers. When a start-up is in development, investors insist even before the product becomes a big seller that executives work out the timing for offshoring jobs.


The US computer industry, Grove observed, employs only 166,000-fewer than in 1975, when the first PC was assembled-while the industry in Asia employs 1.5 million workers, engineers and managers. The world's largest computer maker, China's Foxcon, employs 800,000. They make the products Americans know as Dell, Apple, Microsoft, Hewlett-Packard and Intel.


Union leaders suspect that the same story is playing out at GE. The company was founded on Edison's invention of the incandescent bulb, but this past summer GE closed its last US light-bulb factory, a highly automated, nonunion plant in Winchester, Virginia. Old-style bulbs will still be made in Latin America and Asia, where wages and healthcare are cheaper, and for a time they will still be sold in the United States with the GE label. But the company is moving on, shifting to two new green-tech products that promise vast reductions in energy consumption. Congress is effectively banning US production of incandescents by mandating efficiency standards, starting in 2012.


Both of the new light-bulb technologies were invented in America. But the new bulbs, GE said, will be made overseas, and for the usual reasons: US workers are considered too expensive. They face the same grim choice that has prevailed for decades: either wages get busted from $25-$30 an hour to $13-$15, or the jobs disappear. That trend has been gradually eroding the American middle class.


Stephen Tormey, representative of the United Electrical Workers (UE) at GE, sees a shrewd corporate strategy. "I think GE saw they could make more money with these new technologies and get subsidized by the government as energy-efficient if they became born-again believers in American manufacturing," he says. "I'm all for that. I will stand on the sidelines and cheer-if it's true. So far we haven't seen it. You see these little moves here and there, but so far they are still a globalizing company."


GE is bringing some jobs home. With lots of fanfare, it has announced new moves to restore jobs at various US plants, sometimes to make products like more expensive, energy-saving home water heaters. But union officials are not impressed. They read GE's vaguely worded promises and produce a list of plant closings and job losses. "Press releases do not create jobs," says Chris Townsend, UE's Washington representative.


GE is a brilliant example of how a globalizing company manages its worldwide supply chain, moving elements of production based on costs and market demand. Divided loyalty comes with the territory. GE assembles wind turbines in South Carolina and China. It harvests tax breaks and subsidies from Washington as well as Beijing. Which side is GE on? Its own, and it will go wherever profits are highest. But this race to the bottom undermines standards in both rich and poor countries. The downward pressure on wages, and the obsessive search for lower prices and greater profits, destroys aggregate demand for the entire system. It feeds the deflation that threatens to bring down the world economy.

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