While travelling through the United States this summer, I stopped in on an old friend of mine. A career civil-servant, he proudly showed me the new sundeck he had built on the back of his house. ‘Cost me $35,000 but I reckon I got value for money.’ He asked me what I thought of it, and I jokingly said it gave us Donald Trump. Although my friend knows my penchant for provocation, he’s also a die-hard Hillary supporter – consistently, through what he hopes will be two Clinton presidencies. Needless to say, he wanted an explanation.
It’s funny how we like to think that our spending decisions are between us and our wallets, when in fact shopping is an inherently social act. After all, didn’t somebody make what we buy? So I proceeded to unpack his spending purchase.
Like many unionised public-sector workers, my friend leans liberal (which in America, makes him a natural Democrat): cosmopolitan in his tastes, pro-globalisation, for feminism and gay rights, into recycling and organic foods, and against public-sector cutbacks. My friend is a compassionate person who takes an interest in social justice, but if I were a cynic, I might say of his politics, ‘He would, wouldn’t he?’
Not only does my friend oppose government cutbacks, his union insists with great vigour that his own salary and benefits not be reduced. He acknowledges he is well-paid, but notes it is a fraction of what the one percent get away with, whereas he actually works for what he earns. But here’s the complicating variable. In most of the world, people doing the same job as him get paid much less than he does.
Being a worldly man, my friend had already thought this through – in fact, he’d even done his own little bit of digging — and had an answer ready. Back in his student days, he’d once done a work-abroad programme on spring break, doing a brief internship in a Third-World country. He noticed how laid-back and slow-moving the workers there were, and remarked they wouldn’t be so poor if they just had a work ethic like his. ‘Touché’ I agreed. ‘Labour productivity in those countries is much lower than here.’ But the problem was, wages were lower by a bigger factor. If the government in that country had spent his wages hiring local workers, they could have hired enough to make up his output, and still have money left over.
Not that this wage-gap is peculiar to public-sector workers. It operates throughout the economy, applying to all but a small number of the richest positions. So if the economy were closed, it would just mean everything was more expensive. But also, because what we’d make was so expensive, we’d be exporting less, so our economy would grow more slowly. Annual salary and benefits increases in the order of 3% or so, which his union has secured for him in the past, might drop to 1% per year, if that.
Whenever governments have suggested such a thing, of course, my friend rallies to defend the public sector. He doesn’t want his salary or benefits touched in any way. But then, nor does he want to pay $50,000 for a sundeck. Back in the 1970s, governments tried inflating their way through slow economic growth, and he admits that was the one time he parted with the Democrats and voted for Ronald Reagan.
Ronald Reagan and his ideological heirs, including the first Clinton presidency under Bill – my friend agrees with Hillary ‘he did a great job on the economy’ – had a deft trick to bring down inflation and defend middle-class lifestyles against the competition from Third-World countries, which was then just starting to ramp up. They globalised part of the economy, namely manufacturing. By allowing cheap imports from China and Mexico, they kept inflation low. And since American firms were thus able to shift production offshore, profits went up. That jolted the economy back to life, boosting tax revenues. The government was thus able to continue looking after its employees.
Of course, for workers in those globalised industries, it was a different matter. Their average earnings declined. One way to look at it is to say that the government was using trade policy to redistribute income from workers to professionals like my friend. If it had been him getting the short end of that stick, and redistribution went the other way, though, might he have been be the angry one?
Most every finished good my friend now buys, including many of the inputs to his sundeck, are now imported. Ergo the affordable price. Meanwhile his earnings have continued rising throughout the global age. He attributes this to the fact he got an education, which is part of it. But it’s also because his job hasn’t yet been out-sourced. But if ever the government found a way to do that, he might find something beguiling in the siren-calls of a Donald Trump, railing against the Mexicans and Chinese who have until now helped keep him in the style to which he’s grown accustomed.