Sunday, October 16, 2011

Made in USA

As a child in the late 60’s, some of my most precious possessions were “Made in USA” toys. As a family we were lucky and privileged to own many “Made in USA” artifacts and were proud of it. Adult conversations often included crass jokes around “Made in Japan” and anything with that label was looked down upon. There were no “Made in China” goods at all then and we reluctantly accepted goods made in India.

During my college years, I listened to Neil Diamond’s song “America” ad-nauseam.

On the boats and on the planes
They're coming to America
Never looking back again
They're coming to America

Everywhere around the world
They're coming to America

Got a dream to take them there
They're coming to America
Got a dream they've come to share
They're coming to America

Though the song did not inspire me enough to leave India and settle in the US, it pretty much summed up how people world over thought of America – as the land of opportunity and liberty.

On my first visit to the US in the early 90’s I went on the mandatory rounds of shopping for gifts. Mall after mall, shop after shop were filled with items that had a variety of labels – “Made in China” being the dominant. There were even “Made in Bangladesh” items in the shops, but finding “Made in USA” was rare and only on very unique types of items. Indian families that I met in Houston, often panned US made cars and almost all of them owned Toyota’s or Honda’s.

Sixteen years later, I visited the US once again. On 16th September, 2008 to be precise, the day Wall Street imploded. Lehman Brothers had filed for Chapter 11 bankruptcy protection a day earlier. Through desperate overnight negotiations, the Fed had asked Goldman Sachs and J P Morgan Chase, two of Wall Street’s remaining big banks, to head a USD 75 billion emergency package to keep AIG afloat. Merrill Lynch another of US capitalism's biggest institutions, was to be swallowed by Bank of America in a USD 50 billion takeover to save it from collapse.

America today is in trouble – big trouble. So, what the hell went wrong?

Explanations abound on how America got to this point. Almost all are long, complicated and even intriguing. Here is an abridged version of the one I am most inclined towards.

It has its origins in the great depression of ’29. Down and out, America had only one way to go and it did so through nation building. America built on a massive scale – roads, bridges, buildings, factories and more. WW II further fueled this process and even added more patriotic fervor. America invented, created and built better and more than any other country in the world. Made in USA was respected and sought world over. This made a lot of Americans rich. Successive governments taxed the very rich and used these funds into ever more nation building. Corporate America took the cue and built themselves too creating a huge population of skilled labor and well to do single income middle class families.

As corporate America took a greater role in creation of wealth and prosperity, government started to step back. A new school of thought was beginning to emerge and re-define roles and responsibilities of business and government. Neoliberalism thinking, which stresses the efficiency of private enterprise, liberalized trade and relatively open markets, set in motion a process which has steadily increased the role of the private sector. In the late sixties and early seventies, it emboldened corporate America to think of unbridled expansion and profit.

From here on, the explanation becomes intriguing. For almost a hundred and fifty years, until the end of the 70’s, labor wages rose every decade. As the wages rose, so did the standard of living and the power to buy. The American consumer had arrived.

All that changed in the 80’s though, and labor wages have stagnated since then. Immigration laws were constantly being loosened. Envious people from around the world, set forth in boats and planes to the land of opportunity, plenty and liberty. Corporate America was getting constant access to cheaper and plentiful labor which meant, wages would never turn north again.

So how did Americans cope with this stagnation? First, by working more hours and sending more people from the household  to work and then by borrowing. Americans work on an average 20% more than they did 30 years ago and for the same period of comparison, Europe and other developed countries have seen a negative trend. Americans borrowed by using their homes as collateral and then on their credit cards. The total mortgage debt in 1985 was USD 1000 billion and rose to USD 2000 billion in 1990 and is now in excess of USD 10,000 billion. The total credit card debt in 1985 was USD 500 billion and rose to USD 1100 billion in 1990 and is now in excess of USD 4000 billion.

As the limits of labor capacity and consumption were being reached, new ways had to be found – globalization. The first problem was solved – how? Made in China, Made in Philippines, even Made in Bangladesh. How was the second problem solved? Even more intrigue…

During the same period of stagnant worker wages, increasing productivity, and increasing debt, corporates were making a lot of profit. The total profits corporate America made in 1985 was USD 200 billion and rose to USD 410 billion in 1990 and is now in excess of USD 1600 billion. Most of these profits were given to banks (and some paid as obscene bonuses to top executives). The banks, flush with funds, had to find new ways to lend and they did.

And they lent with total disregard to the credit worthiness of the borrowers. One of the consequences of the availability of easy credit was the housing bubble which eventually lead to the financial melt-down as I reached America on the 16th of September, 2008.

Disclaimers, and many of them. First, this is but an extremely simplistic explanation of how America finds itself in this mess over a period of 40 years. A detailed explanation would require several books. Second, if this explanation has the makings of a Marxist conspiracy theory, then that is not the intention and third, I am not a Marxist. I do admire capitalism and most of what we take for granted today would not have been possible without it.

But surely, America needs to rethink the neoliberal capitalism strain it practices. Surely, there is something wrong. Today, those that deal with America find themselves in one or more of four categories: Financed by USA, Fought against USA, Forced by USA, F#$%^& by USA.

As I watch Shoan, my six year old son, play with a reasonably well preserved Made In USA toy (thanks to his grandmother), I am convinced that US policy makers need to figure out how the rest of the world can once again respect and seek “Made in USA”.

Key References:
David Harvey: The Crisis of Capitalism
Michael Moore: Capitalism - A Love Story
Richard Wollfe: (several lectures and articles)

1 comment:

  1. I liked your dissection of the great American meltdown, wanted to add the unbridled greed of the wall street so-called doyens, coupled with the listless regulation of the American Central Bank. These were also to blame.