Americans have seen their wages shrivel as manufacturing has been repeatedly outsourced to low-cost jurisdictions such as China, Bangladesh and Vietnam. Much of the prevailing conventional wisdom over the past few decades has been that manufacturing is not a necessary part of a wealthy nation, that we live in a “post-industrial” world, that is, one in which we don’t have to do much, if any, manufacturing in the United States. If the Covid-19 pandemic has taught us anything it is that subcontracting everything other parts of the world creates tremendous costs. That’s why we should welcome President Biden’s new “Buy American” provisions in his “Build Back Better” program.
In general as former Treasury Secretary Lawrence Summers has acknowledged, “economic thinking has privileged efficiency over resilience, and it has been insufficiently concerned with the big downsides of efficiency. Going forward we will need more emphasis on “just in case” even at some cost in terms of ‘just in time’. More broadly our economic strategy will need to put less emphasis on short-term commercial advantage and pay more attention to long-run strategic advantage.”
Absent domestic procurement that can’t happen. Instead, American fiscal policy risks becoming a public works programme for the rest of the world. That’s what has happened in the past. “In 2010, the most recent data available, the United States opened $837 billion in government contract competitions to foreign firms, more than twice the combined figure of the next five—the European Union, Japan, South Korea, Norway, and Canada,” according to a recent article in The Washington Post. “The United States that year allowed foreign companies to bid on about 48 percent of its $1.7 trillion government procurement market while the other five put out to bid just 16 percent of their combined $2.4 trillion market.”
This was undoubtedly wonderful for workers in China, Germany or Mexico, but hardly did much for the steadily rising casualties of globalisation in the US economy, who have continued to be dismissed as a rounding error.
Neoclassical economics has always recognised that there would be losers from free trade. But in theory, the net welfare gains — the increase in gross domestic product — would be large enough that it could be redistributed so that no one was worse off.
And that is theoretically correct. But it is empirically wrong. The opposite has happened. The gains have not been distributed equally. Far from making everyone better off, it’s made a lot of people worse off all across the US. Furthermore, American production capabilities and skills have deteriorated and become decrepit as a result.
The whole point of the the Biden domestic procurement programme is to reverse this trend.
In most of the postwar period, having a job was an exit from poverty. Now it’s a gateway into poverty. Because jobs aren’t what jobs used to be. If you are a typical millennial worker, you are nailing down two menial jobs in the gig economy, devoid of benefits, and generally not covered by minimum wage requirements because you’re a contract worker. Without a change in the existing paradigm, we end resorting to tweaking a collapsing system, making the descent as comfortable as possible via redistribution programs, rather than directing fiscal policy toward industrial regeneration and enhanced productivity. “Made in America” requirements for government purchases, including tightening the loopholes in existing executive orders, must form the core of new policies to ensure stable demand and revive national prosperity.