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Why Protectionism Won’t Save Unskilled Labor

Economics / Employment Aug 15, 2016 - 01:48 PM GMT

By: John_Mauldin


I just read a policy paper from the German Marshall Fund of the United States. It defends the present trade model. The authors do a good job, but in the process, they describe the problem.

Take a look at this part. (I bolded a few key points.)

The global economy is no longer about making a product in one country, and shipping and selling it somewhere else. It is about complex supply chains that weave together activities all over the globe, supported by investment, technology, and skills that know no borders.

Creating an even playing field is no longer just about reducing external tariffs and quotas, but about coordinating and sometimes revising what have traditionally been seen as domestic policies to “stabilize” agriculture, promote national culture and identity, encourage innovation, protect health and safety, and ensure citizens a certain minimum quality of life.

Critics of the Trans-Pacific Partnership (TPP) argue it is no mere “trade” deal, and they are right: more accurately, it is a package of integrated economic policies that will increasingly fuse several national economies into a single marketplace.

Here’s the issue with global deals like TPP. While they may be good for economies as a whole, citizens see that the “good” is unevenly distributed.

That’s why Trump calls them “a job and independence threat.”

After supporting the TPP for years, Clinton now says she won’t sign. Both candidates know the problems caused by the uneven distribution of globalization’s benefits over the last 30 years.

Globalization isn’t the only thing causing people to lose their jobs.

Robots are eliminating jobs and businesses

We are actually in the process of bringing manufacturing back to the US. But just because factories are coming back doesn’t mean jobs are.

A factory that relies on robots has an edge if it is near its markets. When Foxconn in China puts robots in a factory and reduces the number of workers from 110,000 to 50,000, you know the labor arbitrage game is coming to an end. And that’s just one factory.

Self-driving trucks and cars will clearly affect truck and taxi drivers. But think of the impact on insurance companies. Estimates are that revenues will drop by as much as 75% in the coming decades. And we won’t need as many small local businesses to fix vehicles after accidents.

Many related industries will see disintermediation (the elimination of middlemen and the displacement of labor). And that’s just one industry.

Workers and businesses have to adapt quickly to survive

The changes that occurred as work shifted from the family farm to urban manufacturing took place over decades and generations. While the move was hard, there was time to adapt.

Today, things change ever faster. And most of this angst-producing change has happened in the last 30 years.

Adapting to such rapid change has been tougher. A surprising reversal of trend in mortality statistics is that white middle-aged males are now dying at an increasing rate due to drug and alcohol abuse and depression.

Disintermediation is doing more than just making voters mad. It is stealing the hopes of significant subsets of entire generations. When your well-paying job goes away and you can’t find another, the loss hits your sense of self-worth along with your bank account.

As whole new industries develop, technology will continue to create jobs. But these are not jobs that will require old skills. Humans have always had to adapt, but the speed at which we must adapt is accelerating.

In the past, it was the young who did most of the adapting, as they learned new skills for new jobs.

In the future, the young will still be part of the adaptation process but so will those in their 40s, 50s, and 60s.

Postponing the inevitable

The elite or Protected class is right to feel discomfort. The anger of the Unprotected is not just an election-year, flash-in-the-pan trend. It is a movement that will grow as the wall of protection gives way for more and more people.

The presidential candidates offer radically different ways to restore protection. But they are fighting the last war, with the tools of the last war. The impulse of both political parties is to spare their supporters unwanted change.

Unfortunately, protection from change for a few comes at a price. The price is less choice and reduced freedom for all. In an increasingly globalized world, regulators act as prison guards.

The FCC wants to run the Internet like a utility. It’s just one of thousands of government bodies that wants to increase its power because some constiuency is lobbying for protection from its competitors.

In the future, the only way to protect yourself will be to learn to constantly adapt.

It’s not just workers that must learn to surf the waves of change. Businesses will too. Elon Musk may be a visionary, and his battery gigafactory may change that whole business.

But I’ll make you a side bet: Whatever the first set of batteries looks like, the entire process of battery design and production will continue to change dramatically. And by 2030, Elon’s factory will be obsolete.

The only way Elon will survive is to adapt. He must stay on the bleeding edge of innovation—making his own factory obsolete if necessary.

A Glimpse of the Future in Aug. 23 Q&A Session with John Mauldin

If you wonder what the future might hold for the US and global economies and stock markets, get answers in the free Q&A session “When the Future Becomes Today” with John Mauldin and his colleagues Patrick Watson and Robert Ross, on Aug. 23, 2:00 PM EDT. Click here to register for the call and to submit your questions.

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