Old Economy Doesn’t Work—Time for a New Model

by James Parks, Jun 3, 2009

An economy in which the rest of the world produces and America consumes no longer works. The United States must begin to make more of the things we consume. That will require a new vision for our economy and concrete actions to change the core policies that created the current global economic crisis.

Speaking during a workshop at the America’s Future Now conference this morning, several members of a panel on global economic strategy said the key to long-term economic recovery is the creation of a new economic model that emphasizes production and savings, not consumption.

That new vision must include actions to fight the major causes of the collapse of U.S. manufacturing—currency manipulation, trade policies that foster a race to the cheapest sources of labor, tax policies that encourage companies to move offshore and the imbalance of power between workers and employers.

Said Thea Lee, AFL-CIO policy director:

If we don’t get this part right, the rest of [President] Obama’s [economic recovery] plan won’t work.

It will take strong leadership and broad support to shift the focus of the economy toward producing what we buy, said Clyde Prestowitz, president of the Economic Strategy Institute.

That shift must start inside the U.S. government. He related a story about Intel, the microprocessor company set to build new plants in Israel and China. Although Intel and other U.S.-based companies receive daily calls from other countries about locating plants there, not one U.S. government official has contacted Intel to suggest that the multibillion dollar plants be built in this country.

Prestowitz pointed out that while the Obama administration’s push for a green economy is a start in the right direction, it does not give enough attention to where the green technology will be made. Right now, most of the green technology is imported from Europe.

Multinationals, with the help of governments, have created a global economy that uses global mobility to beat down unions, lower wages and circumvent environmental rules and regulations, Lee said. Employers can use the threat to take jobs overseas to force workers to accept lower wages and benefits.

Such policies exploded during the eight years of the Bush administration. Lee remarked during the discussion:

The unholy alliance between the multinationals and government finally got what it wanted. Congratulations, you geniuses: You’ve created an economy where nobody can afford to buy the junk you make.

So far, the Obama administration has not done enough to address the trade challenges and rebuild U.S. manufacturing, Lee said. The administration missed an opportunity to address global currency imbalance when it declined in April to identify China as a nation that manipulates its currency.

An AFL-CIO report shows China’s fixed currency rate artificially lowers the price of its goods by 40 percent, effectively subsidizing China’s exports, putting U.S. companies at a competitive disadvantage and creating a record trade deficit. 

The Obama administration also has sent the message that it does not intend to renegotiate the North American Free Trade Agreement (NAFTA). She noted, however, that Obama last month delayed moving the Panama trade deal quickly and would consider it instead in the context of needed reform of broader trade and domestic policies.

Lee praised Obama for taking action to end tax breaks for companies that move jobs offshore, and said that it is essential that the new administration step up enforcement of environmental and  workers’ rights provisions in trade deals.

She also urged the administration to strictly enforce the Buy American provisions in the economic recovery legislation passed by Congress.

Rep. Rosa DeLauro (D-Conn.) said Obama has made a strong start toward reviving the economy by stressing the need to rebuild our infrastructure.

There is a tremendous potential [in infrastructure projects] to touch the way we live by building roads, expanding broadband into rural areas. But we must have leadership. It is time to think big. Elections have consequences. This election said we need to get things done boldly.

Public support exists for bold actions, pollster Stan Greenberg said. He cited recent research by Democracy Corps that suggests the public backs Obama’s plans to create green jobs and promote energy independence. Democracy Corps, which Greenberg founded, is a nonprofit that provides opinion research to progressive groups.

He also said the 2008 election has changed American politics in fundamental ways and created a new progressive coalition of African Americans, unmarried women, Latinos and young voters. And the new swing voters are seniors, white blue-collar workers, white married women, independents and rural non-Southern whites. Across the board, all these groups support bold action to provide long-term investment in our economy and energy independence.

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