The 'Real Unemployment' Needs Real Solutions
By Leo Hindery Jr.

Buy American' -- why not?
By Leo Hindery Jr., Leo W. Gerard and Donald Riegle

What A Jobless Recovery Today Means For Tomorrow?
By Leo Hindery Jr., Leo W. Gerard and Sen. Don Riegle

It's All About Jobs!
By Leo Hindery Jr., Leo Gerard and Donald Riegle

Testimony before the Senate Banking Subcommittee on Economic Policy
By Leo Hindery Jr.

Obama must act to curb executive greed
By Leo Hindery Jr.

Jobs Solutions for Our Jobless Recovery
By Leo Hindery Jr.

The Jobs Solution
By Leo Hindery Jr. & Donald W. Riegle Jr.

An End to False Globalization
By Leo Hindery Jr. and Don Riegle

Create jobs to rebuild America’s economy
By Leo Hindery Jr. and Donald Riegle

America needs a bipartisan coalition on trade
By Leo Hindery Jr. and Shanker Singham

'Good cop, bad cop' needed
By Leo Hindery Jr., David Sirota

Renewing America's 'contract with the middle class'
By Leo Hindery Jr.

Are Free Trade Policies Working?
Senate Commerce Subcommittee on Interstate Commerce, and Tourism

FULL TEXT ARTICLES

The 'Real Unemployment' Needs Real Solutions

"Everyone agrees that the recession is over," said Larry Summers, President Obama's top economic advisor, on December 13.

Yet December's unemployment numbers announced last Friday suggest otherwise -- especially the 'real unemployment' figure.

According to the Bureau of Labor Statistics the official unemployment rate is 10%, a figure which itself caused a major headline to blare, "U.S. Job Losses Dim Hopes for Quick Upswing."

But in fact real unemployment in the United States is stuck at a dismal 19%, a figure nearly twice the so-called official number. And the economy is short a staggering 22.4 million jobs in order to have an overall full unemployment rate of 5%, which is more than twice the 9 million figure the administration is using.

These sharp contrasts arise because the BLS uses only survey data rather than much more accurate payroll data. It also excludes changes in employment among the nation's 11.2 million farm and self-employed workers, even though together they represent more than 7% of the civilian labor force. Most important, however, it does not take into account the 15.1 million workers who are either part-time-of-necessity because they can't find full-time work, marginally attached because they live on the very fringes of employment, or out of the labor force because they are discouraged and have given up looking.

With these three adjustments made, the number of real workers in all four categories of unemployment -- BLS, part-time-of-necessity, marginally attached, and discouraged -- totals 30.4 million instead of BLS's single category figure of 15.3 million. And the number of real unemployed workers has increased by 13.6 million since the start of the recession instead of by BLS's figure of 8.4 million -- in contrast, we should have been creating a net 2.6 million new jobs just to keep up with the natural growth in the labor force of around 108,000 workers per month.

Even the average full-time worker in the U.S. is now working the economic equivalent of only 33 hours per week, a record low number. And in further stark signs of the ongoing depths of this recession, unemployed workers are out of work an average of at least 29 weeks, and the real number of workers unemployed a half year or more is around 10 million.

The economic recovery that Mr. Summers was trumpeting after the meager 2.2% September GDP growth numbers came out is in fact a "jobless recovery" -- one which already involves the largest absolute number of unemployed American workers ever, and one which may see another half million jobs lost before we really bottom out. And sadly, it will take years to recover both the 13 million jobs that have been lost in just the last two years plus the 9 million additional jobs we need to find in order to get back to real full employment.

Using GDP growth alone is a very weak and misleading indicator of true economic vitality. The only measures that really matter are, initially, the "months before net job growth reemerges" and, ultimately, total employment itself.

Once the health care reform bill is passed and signed by the president later this month, it is imperative that the Executive and the Congress focus their full attention on unemployment and on charting a clear path to finding those millions of missing jobs. In short order, they need to:

• Throw their full weight behind an all-of-government, fully-empowered manufacturing and jobs policy that: puts U.S. workers, miners and farmers first; is as neomercantilist as the policies of our major trading partners; and results in a medium-term doubling of the 20 million American non-service workers and their contribution to our GDP. Right now, China has almost twice as many manufacturing employees -- 100 million -- as the United States, Australia, Canada, France, Germany, Japan, Italy, Netherlands, Sweden, Taiwan and the UK have combined (55.4 million).
• Adopt "Buy American" requirements related to federal government procurement, which currently makes up about 20% of the American economy. The U.S. is almost alone among the developed nations and China in not having a significant buy-domestic government procurement program, yet no single stimulus effort would do more to resuscitate U.S. employment, especially manufacturing employment, and materially reduce our nation's massive trade deficit.
• Bring what's called a Section 301 case at USTR against China's "Indigenous Innovation Production Accreditation Program" that was promulgated on November 15, 2009. China's new Program, which limits all Chinese central and provincial government procurement to companies that have indigenous -- read: "Chinese" -- innovation, is far more restrictive than any other buy-domestic program in the world, and it significantly compounds China's already unfair discrimination against foreign commerce in general and with U.S. manufacturers in particular. (Because China is still not a member of the WTO Government Procurement Code, a Section 301 action is unfortunately the only remedy currently available.)
• Mitigate, by whatever means available, China's currency manipulation -- which creates a staggering 25% illegal subsidy on Chinese exports -- and its other unfair trade practices and illegal subsidies.
• Fund a 10-year program of significant public investment to upgrade and rebuild our nation's major infrastructure, which would immediately create 18,000 new jobs for each1 billion we spend. This program should include a new National Infrastructure Bank, incentives for private funding of public infrastructure, a multi-year green transportation program funded through an increase in gasoline taxes, and targeted federal government spending in improving energy efficiency.
• Enact major new tax incentives to encourage businesses to invest in wind and solar energy technologies, state-of-the-art laboratories, and follow-on manufacturing plants and equipment. This effort should include 10% investment tax credits for renovating and modernizing manufacturing facilities, and particular attention needs to be paid to encouraging R&D in America that leads to jobs in America rather than overseas.
• Reduce corporate income and payroll taxes and in return enact a value-added-tax, or VAT, of the sort which 152 countries in the world already have. This VAT is needed in order to quickly restore the essential tax-policy link between productivity growth and wage gains, and it would materially reduce our nation's crushing on-going trade deficit, while largely stop the offshoring of high-quality American jobs.

Christine Lagarde, France's Minister for the Economy, recently answered the critical question of when we should declare the Great Recession of 2007 over by saying that while everyone has their own yardstick, hers is very simple: "Only when we have cut unemployment, can we say the crisis is finished."

The 30 million Americans who are now effectively unemployed on Main Street and their neighbors know Ms. Lagarde is right, just as they know that the meager 2.2% growth in third quarter GDP -- which mostly came from resuscitating (and not even reforming) Wall Street -- doesn't mean that this recession is at all "over," as some in the administration would misleadingly have us believe.

Leo Hindery, Jr. chairs the US Economy/Smart Globalization Initiative at the New America Foundation. He is the former chief executive of AT&T Broadband and other major media and telecom companies.

 

 

'Buy American' -- why not?
By Leo Hindery Jr., Leo W. Gerard and Donald Riegle

L.A. Times
September 1, 2009

Federal government purchases make up about 20% of the U.S. economy, yet the United States is almost alone among the major developed nations and China in not having a significant "buy domestic" government procurement program.

No single economic stimulus initiative would do more in the short and long term to resuscitate U.S. employment, especially manufacturing employment, and to materially reduce our economy-zapping massive trade deficit than a fair "buy American" program.

However, when even a fairly limited program was put forward in February as part of the economic stimulus plan, you would have thought that protectionist cowboys from the U.S. had attacked global motherhood and apple pie.

Representatives of our major trading partners immediately began discussing among themselves how to respond to the United States' alleged "protectionist drive," with China raging the loudest. Editorials overly influenced by the nation's self-serving free-traders hit several newspapers across the country, with the New York Times warning that "rather than supporting employment at home, the 'Buy American' effort could ultimately cost American jobs." And the usually credible Peterson Institute estimated that such an initiative would save or create a meager 9,000 jobs. But out of a total U.S. labor force of 155 million, the correct answer has to be at least a couple million or more because we are talking about transitioning so much of the U.S. economy -- most of nearly $3 trillion in annual government purchases -- to domestic-only origins.

In his first inaugural speech, President Franklin Roosevelt said that the nation's greatest task was "to put people to work." At the time, 13 million Americans were unemployed, and the economy was much better balanced between manufacturing and services.

Now, however, there are nearly 30 million effectively unemployedAmericans, according to Bureau of Labor Statistics figures for July. Manufacturing industries now represent just 11.5% of GDP; the number of people working in manufacturing account for only 9% of the jobs in the country; and we have run an average trade deficit in manufactured goods of more than $500 billion a year over the last five years.

The United States, with its enormity and geographic diversity, simply cannot prosper in the long term with less than 12% of its GDP coming from manufacturing. And because federal government purchases are strongly weighted toward manufactured goods, "buy American" would be a significant immediate boost to manufacturing's regeneration.

It is naive and irresponsible to believe, as some in the administration do, that a service job is just as good as a manufacturing job. In fact:

* Compensation in manufacturing jobs was on average 15% greater than in non-manufacturing jobs in 2008, according to Bureau of Economic Analysis figures.

* Service jobs do very little to help the U.S. balance of trade and mostly just move incomes around the country.

* Manufacturing has by far the largest multiplier effect of all job sectors, creating $1.40 of additional economic activity for each $1 of direct spending, 2.5 other jobs on average for each job in the sector and, at the upper end, 16 associated jobs for each high-tech manufacturing job, according to a 2009 Milken Institute report.

In February, the loudest screams in opposition to the modest "buy American" requirements proposed in the stimulus package came here at home from the U.S. Chamber of Commerce and the Consumer Electronics Assn., and overseas from China.

Yet both the U.S. Chamber of Commerce and the electronics association are dominated, in their finances and thus in their policies, by multinational overseas companies that have large-scale operations in countries with their own significant buy-domestic programs.

It was particularly galling to hear objections from China, which is responsible for a staggering 78.5% of the U.S. trade deficit in manufactured goods so far this year.

China had an implicit buy-domestic program for years, and now, as part of its own stimulus program, it has a very explicit, countrywide "buy Chinese" policy. On May 26, Beijing said that henceforth government procurement must use only Chinese products and services unless they are not available within the country or can't be bought on reasonable commercial or legal terms.

"Buy American" provisions of one form or another have been around since the 1930s, and it is not opportunistic, unfair or inappropriate, as some have said, for us to have a strong one now, subject, as with other countries' programs, to goods being available in-country on reasonable terms.

It is important to note that "buy American" will have little or no impact on the cost of purchases by workers, as this initiative targets only purchases by the federal government, the effects of which are thus almost entirely captive to our own economy. That said, for the vast majority of Americans, the gains in lower prices because of trade and cheap imports long ago began to be outweighed by wage losses.

But it's not only Congress that needs to do the right thing; there seems to be problems as well with some in the administration.

In April 2008, during the presidential campaign, Barack Obama promised that he would "ensure that our government procurement policies strengthen, rather than compete against, the interests of our domestic businesses and that they help create jobs for American workers."

Yet Commerce Secretary Gary Locke recently waived important portions of the "buy American" obligation for the Broadband Technology Opportunities Program, saying they would be inconsistent "with the public interest." And the Office of the U.S. Trade Representative has been working for the last month to curtail the inclusion of any such provisions in future U.S. legislation.

All of this is wrongheaded. Rather than diminishing the already modest "buy American" provisions of the stimulus package, we should, in ways consistent with our World Trade Organization obligations, be expanding them to cover all national government procurement as other major powers do. And pending legislation that would ably accomplish most of this is Sen. Sherrod Brown's (D-Ohio) and Rep. Mike Michaud's (D-Me.) Trade Reform, Accountability, Development and Employment Act.

At the same time, however, as we are adopting our own buy-domestic requirements, it is critical -- because the issues are linked -- that China and the U.S. also quickly agree on a fundamental readjustment of our bilateral trade relationship to better serve the long-term interests of both nations.

"Buy American" is neither un-American nor anti-globalization. It is simply good, necessary, balanced and reciprocal economic policy.

Leo Hindery Jr. is chairman of the Smart Globalization Initiative at the New America Foundation and an investor in media companies. Leo W. Gerard is international president of the United Steelworkers and a member of the executive council of the AFL-CIO. Former Michigan Sen. Donald W. Riegle Jr. is a member of the Smart Globalization Initiative and chairman of government relations at a global advisory company.

What A Jobless Recovery Today Means For Tomorrow?
by Leo Hindery, Jr., Leo W. Gerard and Sen. Don Riegle

Huffington Post
August 17, 2009

The three of us -- the president of the United Steelworkers from Pittsburgh, a Corporate CEO now living in New York, and the former senior U.S. Senator from Michigan -- wrote in this space on August 5 about the jobless economic recovery we believe the nation is in, one in which, 20 months after this recession began, more than 18% of the nation's workers -- 30 million in total -- are still effectively unemployed and even the nation's full-time employees are working only an average of 33 hours a week.

Three-part Prescription

We offered a precise three-part prescription of what we feel needs to be done.

Part one calls for Congress and the administration to immediately enact an all-of-government industrial policy that puts American workers first, is comparable to the policies of our major trading partners, and is integrated with our nation's efforts to be the world's dominant manufacturer of green technologies and components.

Part two calls for four related initiatives by the Administration and Congress:

1. Fund a 10-year (not the current two-year) program of significant public investment to upgrade and rebuild our nation's infrastructure.

2. Adopt a "Buy American" requirement for all federal procurement, as America is now the only nation among the major developed nations and China without a meaningful "buy domestic" program.

3. Enact major corporate tax reform that creates new incentives for corporations to create jobs in America and eliminates the current incentives for them to relocate jobs overseas. This reform should include reducing the corporate income tax and payroll tax and moving to a value-added-tax or VAT to replace that lost revenue.

4. Ensure that loans and credit facilities are readily available to the nation's small and medium size businesses and manufacturers.

Part three calls on the administration and Congress to demand that our trade agreements have meaningful labor and environmental standards, forbid illegal subsidies and currency manipulation, and do away with "one size fits all" approaches that ignore significant differences in levels of development, forms of government, and reciprocity. Most urgently, we need to fundamentally rework our trade relationship with China to counter the unfairness of China's severely undervalued currency and its massive and often illegal business subsidies, which have been decimating our economy and destroying millions of American jobs for nearly a decade.

We thought our prescription was pretty simple and compelling and that it would get the immediate attention of the administration.

Boy, were we wrong.

Instead, the administration, the Treasury and the Fed seem to feel that we have already more than hit bottom, and they have already declared or are about to declare the recession officially over.

It's almost as if the administration is opting for a rose-colored-glasses PR strategy rather than taking a hard-nose look at actual consumer and employment figures and their trends, and modifying its economic policies accordingly.

It is still very clear to the three of us that the economic stimulus plan will not move the country toward anything approaching full employment and, most important, that the jobless recovery has already started "feeding back" on itself, as evidenced by four key indicators:

First, consumer spending, despite the benefits from millions of $500 stimulus checks and the "cash-for-clunkers" program, remains in a very deep malaise, which is understandable given the current massive unemployment and under-employment. For example, we are already seeing some truly horrible back-to-school retail numbers.

(This said, however, we shouldn't, at the same time we are considering the current low level of spending, be wishing for consumer spending that is overly robust. How disappointing it was to recently hear Fareed Zakaria say that "U.S. consumer spending is the key to global economic rebound", when relative to all other major developed countries, the U.S. economy has in fact for years been overly dependent on individual consumption, at a staggering 70% or so of GDP. The correct "key" going forward is not re-inflating the consumer spending balloon, but rather it is consumer investment and savings derived from fair wages paid to a near fully-employed workforce.)

Second, the percentage of U.S. homeowners who owe more than their house is worth will nearly double to an almost unbelievable 48% in 2011, from the already numbing level of 26% today, according to Deutsche Bank. And as the household mortgage problem persists and home equity values continue to shrink, the commercial real estate sector is quickly becoming the next great Sword of Damocles - already the amount of non-performing commercial real estate loans is massive and the thread that's keeping this particular Sword from dropping is wearing very thin.

Third, the continuing trade deficit, which is currently around 2.2% of GDP, subtracts more from the demand for American-made goods and services than the stimulus plan adds, and yet with the trade policies now in place, this deficit is certainly not going to shrink and in fact it is probably going to get worse.

Fourth, even if one accepts GDP growth as the primary measure of economic vitality, which notably we don't, the so-called "recovery" of GDP in the second quarter was mostly due to one-time accelerated government spending in general and on transfer payments, and the expected GDP "recoveries" in the third and fourth quarters will be just as questionable, because they will be mostly the result of a resuscitated Wall Street rather than, as we need, a revitalized Main Street.

(Frankly, the continued use of GDP growth as the primary measurement of economic strength is beyond lame - to quote Eric Zencey in the New York Times, if we "kept our checkbooks the way GDP measures the national accounts, we'd record all the money deposited into our accounts, make entries for every check we write, and then add all the numbers together", which of course would measure only our combined in-and-out activity and teach us little about our true financial condition. The same can be said about GDP growth as a measure of the true state of the U.S. economy.)

U, V or W - or L?

An economic recovery typically takes one of three shapes: a U-shape (sharp downturn followed by slow and gradual rebound because consumers are slow to start spending); a V-shape (dramatic tumble which produces a similarly sharp upswing that is ignited by quick re-hiring of employees); or a W-shape (recovery cut short by a second recession followed by a second rebound, which is what happened in 1980-1982).

The administration, the Treasury and the Fed, who, as we said, feel that we have already more than hit bottom, believe that we are already on the upward part of either a U-shaped or even a V-shaped recovery. We -- and others -- strongly disagree, and that's bad news.

A number of world-class economists whom we respect believe that at best we are in for a W-shaped recovery, with a double dip recession hitting us by 2011. However, we are even more concerned.

Looking closely as we do at both effective unemployment and the quality of existing employment, we believe that we are in fact looking at the worst possible shaped recovery of all, which is an L-shaped one.

An L-shaped recovery reflects a precipitous decline, which is what we started to see in December 2007, followed by a prolonged period of large-scale unemployment and economic malaise, which is what we are seeing now. And "L-shaped recovery" is just shorthand for the much more personally-felt characterization, which is jobless recovery.

We come to our conclusion about this being a jobless recovery because of the massive number right now of uncounted unemployed workers. Each month the Bureau of Labor Statistics determines the number of workers officially unemployed, and in doing so they largely ignore workers who are either part-time of necessity, marginally attached, or have quit the labor force out of frustration.

Even in past recessions, the number of unemployed workers not counted almost never exceeded a third or so of the official number. Now, however, there are 600,000 more uncounted unemployed workers than counted ones, which makes the total number of unemployed workers 29.5 million, instead of the official 14.5 million, and makes the effective unemployment rate a staggering 18.4%, instead of 9.4%.

If BLS doesn't pay much attention to these all-inclusive numbers, middle and lower class Americans in every city and town certainly do, because they are either experiencing them firsthand or watching their neighbors do so. This is why U.S. consumer confidence has just fallen back to the very low level it was just after the Inauguration, and why Main Street disagrees so strongly with the Federal Reserve's and the Administration's assessment of the state of recovery of our economy.

As we said, this contrast of views is now so extreme that it's almost as if some in the Administration and on Wall Street are trying to employ false assessments and pronouncements in order to create a "consumer confidence multiplier".

So, what does a jobless recovery today mean for tomorrow?

For one thing, it means that budget cutting and slashing by the States will continue around the country for at last another year or two (or even three), since the $70 billion that is still forthcoming to them from the February stimulus plan is but a third of their current overall budget shortfall of around $210 billion. And few things will be more de-stimulative into the medium term than these trashed budgets.

It means that we haven't seen the end of the rise in the savings rate, which has already gone from less-than-zero during the housing bubble to around 7% today and which now looks poised to increase to 10 or even 13% in the near future. In principal, as we've said, much more consumer savings than zero is a very good thing, and 7% would be a pretty good level to stay at. However, because of the pervasive uncertainty which a jobless recovery generates, a reasonable savings rate can quickly turn into an over-savings rate, which would be as de-stimulative into the long term as the nation's broken State and municipal budgets.

It means the destruction or, at best, deterioration of our human capital. Workers who tend to be unemployed for long period of times tend to lose skills or fail to keep up with the latest work practices and innovations, and thus they are less prepared and less productive than those who remain actively engaged in the workforce. Future productivity and wages suffer as a result, and we end up with even more mismatches of skills and jobs.

It means that we will not soon be able to rebuild, and sustain, the great commercial engines that fostered the broad American middle class of the past century and underpinned the global prosperity of the past quarter-century. Nor will we soon be able to bring an end to America's sorry status as the world's largest debtor nation, which carries great risks to our national and economic security.

Finally, and very important, a jobless recovery today means that tomorrow we will struggle greatly to pay for the health care reform and energy reform that the vast majority of Americans want to see. How can we comfortably give more than 100 million Americans some amount of expensive health care coverage that they don't have now and at the same time give the entire nation energy that is materially carbon freer when nearly 30 million workers are effectively unemployed, when the other 131 million workers are working on average only 33 hours a week, and when, at enormous additional cost, we must remain the world's greatest military power?

And so one more time...

In order to carry out these important national missions, the Obama Administration must focus, in ways it has not done so far, on making sure that we soon again have a vibrant middle class. And so one more time:

We need an all-of-government national manufacturing & industrial policy.

We need significant public investment in infrastructure, a "Buy American" requirement for all federal procurement, major corporate tax reform, and robust loan making to the nation's small and medium size businesses and manufacturers.

We need trade agreements, especially ones with China, that are fair to American workers, balanced between the parties, and have teeth.

And because we have so delayed implementing these initiatives, we now also need to do an even better and much more extensive job of extending unemployment benefits, reworking home mortgages, and providing basic needs for unemployed workers and their families. Ten million workers have now been unemployed for at least six months, and all of them for sure, as well as most of the 20 million additional workers who became unemployed after them, have by now lost their safety nets.

Leo Hindery Jr. is chair of the Smart Globalization Initiative at the New America Foundation and an investor in media companies. He is the former CEO of AT&T Broadband and its predecessors, Tele-Communications, Inc. and Liberty Media. Leo W. Gerard is international president of the United Steelworkers and a member of the executive council of the AFL-CIO. Former Michigan Senator Donald W. Riegle Jr. is also a member of the Smart Globalization Initiative and chair of government relations at a global advisory company. He was chair of the Senate Banking Committee from 1989 to 1994.

 

It's All About Jobs!
By Leo Hindery Jr., Leo Gerard and Donald Riegle

Huffington Post
August 5, 2009

What brings together the President of the United Steelworkers from Pittsburgh, a Corporate CEO now living in New York, and the former senior U.S. Senator from Michigan?

It's all about jobs - and the urgent need for millions of new ones.

While President Obama has spoken forcefully about laying a new foundation for the economy, one that creates good jobs and rising incomes and that moves us from an era of borrow-and-spend to one where we save and invest and are able to produce more at home than we consume, we believe that the Administration still needs to address two glaring shortcomings in its economic program.

First, is the failure, aside from the emergency restructurings of Chrysler and GM, to enact an all-of-government national manufacturing and industrial policy designed to simultaneously ensure the competitiveness of US-based businesses and grow high-value jobs in America.  And second, is the need to begin the promised reform of our trade policies with those economies, particularly China's, that do not play by the same rules we do and occasionally even cheat.

It is also by now very clear that the economic stimulus plan passed by Congress in February will not move us toward anything approaching full employment, since by the Administration's own estimate, the plan will "save or create" (but mostly just save) only 3.5 million jobs over two years, which are just a quarter of the 13.3 million jobs effectively lost since this recession began in December 2007 and just 12% of the workers already effectively unemployed.

Even in past recessions, the number of unemployed workers not included in the official Bureau of Labor Statistics monthly figure - that is, workers who are either part-time of necessity, marginally attached, or have quit the labor force out of frustration - has almost never exceeded a third or so of that official number.  Now, however, there are nearly a million more uncounted unemployed than counted ones, making the total number an unprecedented 30.2 million workers, instead of the official 14.7 million, and the effective unemployment rate is a staggering 18.7%, instead of 9.5%.

When nineteen months after this recession began, nearly 19% of the nation's workers are still effectively unemployed and when even the nation's current full-time employees are working only an average of 33.1 hours a week, which are the fewest hours on record since the BLS began counting in 1964, it is clear that we are already deep into a jobless recovery.  And by now it is just as clear that this jobless recovery will be particularly susceptible to a new downturn, because of the way it is already feeding back on itself, and that there will be little relief for the 47 out of 50 states, whose budgets have been absolutely blasted by falling tax revenues.

Significant and timely job retention and creation overall must be an urgent priority, certainly on a par with health care reform, but these dismal macro unemployment numbers tell only the big picture part of the jobs deficit story.

Importantly, we need to be just as worried about the fact that our economy has mostly hemorrhaged jobs in the very sector - manufacturing - that must grow in order for us to move permanently away from debt-financed consumption as the principal engine of economic growth.  And it is the current and now decades-long persistent manufacturing jobs collapse that unites the three of us as friends and as colleagues, despite coming from very different backgrounds.

Just since this recession began, manufacturing has lost 13% of its workforce; manufacturing industries now represent a meager 11.7% of GDP; people working in manufacturing now account for only 8.7% of the jobs in the country; a quarter of the nation's 282,000 remaining manufacturing companies - 90,000 in all - are now deemed severely "at risk"; and we have run an average annual trade deficit in manufactured goods of more than $500 billion over the past five years.

Congress and the Administration, working together, need to immediately enact a robust industrial policy that puts American workers first and is comparable to the policies of our major trading partners.  And then we need to integrate this policy with efforts to be the world's dominant manufacturer of green technologies and components, which offer us such enormous opportunities.

Perhaps the biggest example today, in dollar terms, of what the failure to have our own manufacturing & industrial policy has wrought is California, which has just confronted the largest annual budget deficit in the history of the Union.  California would have had a dramatically smaller deficit, or maybe even none at all, if in the state manufacturing workers today simply represented the same share of total workers as they did in the year 2000, which was 12.8%.  Instead, California lost, over this period, more than 400,000 manufacturing jobs which, after considering multiplier effects, would have benefited its budget on the order of $300 billion of cumulative income taxable wages.

The need for an elaborate American industrial policy was first widely observed as far back as the early 1980s, and by 1993 some in the Clinton Administration and especially some enlightened members of Congress tried to enact such a policy.  Regrettably, against great opposition from the country's major multinational companies and the "free traders", they failed, and now 16 years later, we still don't have one.

Even if some in our political leadership today still don't understand and accept this basic imperative, America's main trade competitors sure do.  Each of the other members of the G-20 has such a policy, and together they are using them now to great effect to resuscitate their broken economies and further weaken ours.  Germany, Japan and South Korea are doing everything possible to preserve their significant manufacturing bases, while China, which consistently accounts for 60% of the US trade deficit in manufactured goods, is particularly accelerating its efforts to grow its manufacturing sector.

We believe that two things are currently holding us back from having our own manufacturing & industrial policy - and both need to be quickly disabused.

First, some in the Obama Administration, along with others of influence, wrong-headedly believe that one job is as good as another, whether it is in manufacturing or service.  This is simply not true, and even the simplest comparison of the two sectors shows that:

• Compensation in manufacturing jobs is 20% greater than in non-manufacturing jobs;

• Service jobs do very little to help America's balance of trade, and mostly just move incomes around the country; and

• Manufacturing has by far the largest multiplier effect of all job sectors, creating $1.40 of additional economic activity for each $1.00 of direct spending, 2.5 other jobs on average for each job in it, and, at the upper end, 16 associated jobs for each high-tech manufacturing job.

Second, these same individuals assume, again with no supporting evidence, that new jobs associated with exported services will make up for past and future manufacturing job losses.  One Administration official even said recently that America's export future resides in exporting "consulting and legal services, software, movies and medicine", which is simply impossible in dollar terms.  In fact, in the future, high-quality service jobs are at least as much at risk of being offshored as are manufacturing jobs, as India and China are especially keen on seeing such jobs domiciled on their own shores.

In addition to throwing its full weight behind an all-of-government manufacturing & industrial policy, the Administration must also be willing to:

• "Pick winners" from Main Street and then support them, because all other developed nations and China do so every day, to great competitive effect.  (Right now, the only "winners" being picked and seriously supported seem to be those residing on Wall Street, which is sadly ironic since it was largely these very same financial institution that just brought our economy to its knees.)  The Administration has moved modestly in this direction with proposals to encourage private investment in wind and solar energy and by making certain modest targeted federal investments, however, it needs to do much more if we are to create new comparative advantages in these and other industries.

• Fund a ten-year (not the current two-year) program of significant public investment to upgrade and rebuild our nation's infrastructure, which will provide the much-needed foundation for higher-value added production and advanced business services.

• Adopt "Buy American" requirements related to all federal procurement, which now makes up about 20% of the US economy.  America appears to be the only nation among the major developed nations and China without a significant "buy domestic" procurement program, and we need one desperately for our own economic recovery and global competitiveness.

• Enact major corporate tax reform to incent corporations to create jobs here and to eliminate the current incentives for them to relocate manufacturing and service jobs abroad.  This reform should include reducing the corporate income tax and payroll tax and moving to a value-added-tax or VAT to replace that lost revenue.

• Make loans and credit facilities readily available to the nation's small and medium size businesses and manufacturers, which desperately need them while the likes of Goldman Sachs and the major banks are succoring off of US Government guarantees and TARP monies but not lending to these smaller companies.  (How foolish indeed was it to let CIT, which every day loans money to 950,000 small and medium size businesses, essentially fail for lack of an "angel" in the Treasury Department, while Treasury continues to resuscitate but barely reform the errant Wall Street banks that precipitated this financial crisis.)

However, not even a broad new national industrial policy can right our economic ship without there also being complementary trade policies that prevent other economies from gaining unfair competitive advantages.

The Administration and Congress also need to immediately move away from our past decades of misguided trade policies and demand trade agreements that have meaningful labor and environmental standards and forbid illegal subsidies and currency manipulation.  At the same time, we need to dispense with "one size fits all" trade agreements that ignore significant differences in levels of development, forms of government, and reciprocity.

But most immediate and most important, we still need the fundamental reworking of our trade relationship with China that was promised during the Campaign, which despite two major Administration encounters already with them has yet to occur.

China's massive trade surplus with the United States - a staggering $277 billion of manufactured goods just in 2008 - is mostly the result of its severely undervalued currency, massive legal and sometimes illegal subsidies to its own manufacturers, and very aggressive policies to induce foreign corporations to shift their production facilities and technology to it.  These policies have already cost us millions of jobs, and they will keep costing us jobs until they are fixed.

Challenging China over its unfair trade practices is not just necessary for the future of US manufacturing jobs - it is also critical for the world economy.  The global economy simply can't function if the third-largest individual economy runs current account surpluses on the order of 8 to 10% of GDP, as China has done consistently for the past few years.

These are truly unprecedented times, and thus looking at past business cycles and responses for the answers is likely to be of only very limited relevance and utility, as too many in the Administration and Congress seem to do by ideological reflex.  Instead, we need, as soon as possible, an Emergency National Summit on Manufacturing, to be attended by relevant Cabinet officers, the bipartisan leadership of both Houses of Congress, and a small number of the top corporate and labor leaders on this issue.  We also need an activist executive branch and Congress willing both to turn around the excessive laissez faire and deregulatory approaches of the last eight and, in some cases, the last thirty years, and to enact that national manufacturing & industrial policy we are calling for.

Our national goals, in the medium term, must be to near fully employ those 30 million currently unemployed American workers, and in the process to more than double the number of Americans working in manufacturing, which is the least amount needed to get our economy back on track sustainably.  It's all about jobs - whatever it takes!

Leo Hindery Jr. is chair of the Smart Globalization Initiative at the New America Foundation and an investor in media companies.  He is the former CEO of AT&T Broadband and its predecessors, Tele-Communications, Inc. and Liberty Media.  Leo W. Gerard is international president of the United Steelworkers and a member of the executive council of the AFL-CIO.  Former Michigan Senator Donald W. Riegle Jr. is also a member of the Smart Globalization Initiative and chair of government relations at a global advisory company.  He was chair of the Senate Banking Committee from 1989 to 1994.

The US as a Global Competitor: What are the Elements of a National Manufacturing Strategy?
by Leo Hindery Jr.

Testimony before the Senate Banking Subcommittee on Economic Policy
July 17, 2009

Mr. Chairman, other Subcommittee members, I am Leo Hindery and I am Chairman of the Smart Globalization Initiative at the New America Foundation, where I spend my time on jobs and trade issues.  Occupationally, I am an investor in media companies, and I was formerly CEO of AT&T Broadband and its predecessors, Tele-Communications and Liberty Media.  It is an honor for me to appear before you.

I want to discuss our largely jobless economic recovery and desperate need for an all-of-government national manufacturing & industrial policy.

President Obama has recently reaffirmed the administration's belief that the economic stimulus plan passed by Congress in February will "save or create" 3.5 million jobs over two years.   There's obviously a huge difference between a job that's saved and one that's created - the Labor Department does not even collect data on "jobs saved", nor does anyone else - but much more important, 3.5 million jobs represent only a quarter of the 13.3 million jobs effectively lost since the recession began in December 2007 and just 12% of the more than 30 million workers already effectively unemployed.

I would offer that it is important that Congress always consider in its deliberations the millions of unemployed workers not included each month in the BLS's determination of the officially unemployed, specifically those workers who are either part-time of necessity, marginally attached, or in the "labor force reserve" because they have quit the labor force out of frustration.  In the past, the number of "uncounted" unemployed almost never exceeded a third or so of those who were officially counted, albeit still a very large number.  However, right now, there are actually 800,000 more uncounted unemployed workers than counted ones, making the total number of effectively unemployed workers an unprecedented 30.2 million instead of the official 14.7 million and the effective unemployment rate 18.7% instead of 9.5%.  And yet as numbing as these numbers are, I believe we are going to see additional significant net job losses for at least another 18 months.

We are already deep into a jobless recovery, and in the process we are headed toward an economic base so weakened that it will be incapable of sustaining a vibrant middle class.  There is also the reality that this jobless recovery will be particularly susceptible to a new downturn because of the way it is already feeding back on itself, actually worsening in some cases the circumstances that originally triggered it.  Finally, a jobless recovery means there will be little or no relief for state and local governments whose budgets have been hard hit by falling tax revenues.

When nearly 19% of workers are already effectively unemployed and while even the nation's current full-time workers are working only 33.1 hours a week - the fewest hours on record since the BLS began counting in 1964 - and seeing their wages reduced at an average 6.2% annual rate, significant and timely job retention and creation must be an urgent priority, on a par with health care reform.  Right now, neither initiative can take a back seat to the other, as both are integral to true economic recovery.

And the reason this particular hearing is so important is because the massive job-creation deficit we face really tells only the macro side of our sad employment story.  We need to be just as worried about the fact that our economy is mostly hemorrhaging jobs in the very sector - manufacturing - that must grow in order for us to move permanently away from debt-financed consumption as the principal engine of economic growth.

Since the recession began, manufacturing has lost 13% of its workforce; manufacturing industries now represent just 11.7% of GDP, after being 15.5% as recently as 1996 and much higher earlier; people working in manufacturing now account for only 8.7% of the jobs in the country; a quarter of the nation's 282,000 remaining manufacturing companies - 90,000 in all - are now deemed severely "at risk"; and we have run an average trade deficit in manufactured goods of more than $500 billion over the past five years.

Yet despite 30 years or so of extreme neglect, our now depleted manufacturing sector still accounts for a critical 60% of all exports from the US and for 70% of the nation's entire R&D.

However, aside from its emergency restructuring of Chrysler and GM, the administration has not developed an all-of-government national manufacturing & industrial policy designed to simultaneously ensure the competitiveness of US-based businesses and grow high-value jobs in America.

Congress and the administration, working together, need to immediately enact such a policy, one that puts American workers first and is comparable to the policies of our major trading partners.  We also need to integrate this policy with efforts to be the world's dominant manufacturer of green technologies and components, and I applaud you, Senator Brown, and your former colleagues in the House, Congressmen John Boccieri and Zack Space, for sponsoring the "Investments for Manufacturing Progress and Clean Technology" or IMPACT Act.

The need for an elaborate American industrial policy was first widely observed as far back as the early 1980s, and by 1993 some in the Clinton administration and especially some enlightened members of Congress tried to enact such a policy.  Regrettably they failed, and now 16 years later, we sit here in 2009 still without one.

Even if some in leadership today don't understand and accept this basic imperative, America's main trade competitors certainly do.  All of the other members of the G-20 have such policies, and they are using them today to great effect to resuscitate their broken economies and further weaken ours.  Germany, Japan and South Korea especially are doing everything possible to preserve their manufacturing bases, while China, which consistently accounts for 60% of the US trade deficit in manufactured goods, is aggressively accelerating its efforts to grow its manufacturing sector.

To this latter point, while the US was losing 1.4 million manufacturing jobs from 2002 to 2006, manufacturing employment in China during these five years was increasing by 10% to 112 million, which is about 100 million more than the total number of manufacturing workers left in America - and this trend is now only worsening.

I believe that two things are holding the US back from having its own manufacturing & industrial policy - and we need to quickly disabuse both of them.

First, some in the Obama administration, as well as others of influence outside the administration, wrong-headedly believe that one job is as good as another, whether it is in manufacturing or service.  This is simply not true, and even the simplest comparison of the two sectors shows that:

• Compensation in manufacturing jobs is 20% greater than in non-manufacturing jobs;
• Service jobs do very little to help America's balance of trade, and mostly just move incomes around the country; and
• Manufacturing overall has by far the largest multiplier effect of any job sector in the country, creating: $1.40 of additional economic activity for each $1.00 of direct spending; on average, 2.5 jobs in other sectors for each job in it; and, at the upper bounds, 16 jobs for each high-tech manufacturing job.

Second, these individuals assume, with no supporting evidence whatsoever, that new jobs associated with exported services will make up for past and future manufacturing job losses.  One administration official even said recently that America's export future resides, and I quote, in exporting "consulting and legal services, software, movies and medicine".  It is naïve to speak so optimistically of these non-material activities, and it is simply wrong to view exported services as ready substitutes for good manufacturing jobs, since large-scale high-quality service jobs are heavily dependent on and correlated to a strong manufacturing sector.  The reality is that in the future, high-quality service jobs are at least as much at risk of being offshored as are manufacturing jobs, with India and China especially keen on seeing such jobs domiciled on their own shores.

To offer just one big example of what the failure to have our own manufacturing & industrial policy has wrought, the State of California, which is now confronting the largest annual budget deficit in the history of the Union, would in fact have a dramatically smaller deficit, or maybe even none at all, if in the State manufacturing workers today represented simply the same share of total workers as they did in the year 2000, which was 12.8%.  Instead, however, California lost, over this period, more than 400,000 manufacturing jobs which, after considering multiplier effects, would have benefited the State on the order of $300 billion of cumulative income taxable wages.

In addition to throwing its full weight behind an all-of-government manufacturing & industrial policy, the administration must also be willing to:

• "Pick winners" in the economy and then support them, despite its apparent aversion to doing so, because frankly all other developed nations and China do so every day, to great effect.  The administration moved modestly in this direction with its proposals to encourage private investment in wind and solar energy and by making targeted federal investments in building retrofits, smart grids and meters, and clean transportation systems.  However, it needs to do much, much more if we are to create new comparative advantages in these and other industries, and particular attention needs to be paid to associated training, access to low-cost energy, and financing provisions for small and medium size manufacturers.

• Fund a ten-year (not the current two-year) program of significant public investment to upgrade and rebuild our nation's infrastructure, which would provide the much-needed foundation for higher-value added production and advanced business services.
• Adopt, consistent with WTO rules, "Buy American" requirements related to all federal procurement, especially procurement associated with new investments in infrastructure and green energy initiatives. Federal purchases make up about 20% of the economy, yet America appears to be the only nation among the major developed nations and China without a significant "buy domestic" procurement program.
• Enact major corporate tax reform to make incentives for corporations to create jobs here and eliminate the incentives for them to relocate manufacturing jobs, as well as service jobs, abroad. This should include reducing the corporate income tax and payroll tax and moving to a value-added-tax or VAT to replace that lost revenue.

A national industrial policy cannot succeed, however, without complementary trade policies that prevent other economies from gaining unfair competitive advantages.  The trade deficits accumulated just during the Bush administration - a whopping $4.7 trillion - were a major cause of the loss overseas of 5.3 million manufacturing jobs and more than 2 million service jobs, and they made the US economy about $1.5 trillion smaller today than it would have been otherwise.

We couldn't afford these economy-zapping job losses then, and we certainly can't afford them now.  Notably, even today's recession-shrunken trade deficit of 2.5% of GDP will subtract more from the demand for US goods and services than the economic stimulus plan will add, and in normal times our trade deficits consistently aggregate an even more economy-draining 5% or so of GDP.

The administration and Congress should, I believe, immediately move away from our decades of misguided trade policies and demand trade agreements that have meaningful labor and environmental standards and forbid illegal subsidies and currency manipulation.  We also need to dispense with "one size fits all" trade agreements that ignore significant differences in levels of development, forms of government, and reciprocity.

At the same time, we need meaningful trade policy coordination among especially the G-8, and we need it to counter the confusing statement out of the administration recently that "floating exchange rates mean that economic policies don't have to be harmonized among nations".  Of course, they do!

And on an overall basis, right now the major "surplus nations" - specifically, China with its enormous $2 trillion of foreign currency reserves, Germany and the oil-exporting nations - also need to immediately deploy a significant portion of their accumulated foreign reserves where doing so will most stimulate the world economy, whether it be within their own economies, overseas, or, in order to assist the poorer countries, in a combination of long-term development loans and Official Development Assistance or ODA.

Most important when it comes to trade and globalization, however, we need a fundamental re-examination of our relationship with China.

China's massive trade surplus with the United States - a staggering $277 billion of manufactured goods just in 2008 - is the result of its severely undervalued currency, massive subsidies to its own manufacturers, and elaborate policies to induce foreign corporations to shift their production facilities and technology to it.  These policies have already cost us millions of jobs, and they will keep costing us jobs until they are fixed.

Challenging China over its unfair trade practices is not just necessary for the future of US manufacturing jobs, however - it is also critical for the world economy.  The global economy simply can't function if the third-largest individual economy runs current account surpluses on the order of 8 to 10% of GDP, as China has done consistently for the past few years.

In closing, these are truly unprecedented times, and thus looking at past business cycles and responses is likely to be of only very limited relevance and utility.  To address the current desperate situation, we need, as soon as possible, an Emergency National Summit on Manufacturing, to be attended by relevant Cabinet officers, the bipartisan leadership of both Houses of Congress, and a small number of the top corporate and labor leaders on this issue.  And we especially need an activist executive branch and Congress willing to turn around the excessive laissez faire and deregulatory approaches of the last eight and, in some cases, the last thirty years, and to enact a national manufacturing & industrial policy that matches and competes fairly with the industrial policies of our major trading partners, especially China.

Thank you, and I am happy to answer any questions you may have.

Sources:

1. "Building the Next American Century: The Past and Future of American Economic Competitiveness", by Kent H. Hughes (Woodrow Wilson Center Press, 2005)

2. "U.S. Needs a VAT", March 7, 2009, by Economyincrisis.org - America's Economic Report - Daily.htm

3. "Manufacturing 2.0: A More Prosperous California", June 2009, by the Milken Institute

4. "Manufacturing and the US Economy", June 4, 2009, by Samuel Sherraden and Sherle Schwenninger, New America Foundation

5. "Not Out of the Woods: A Report on the Jobless Recovery Underway", June 9, 2009, by New America Foundation

6. "Senator Brown's ‘IMPACT Act' Included In House Climate Change Bill", press release, June 26, 2009

7. re June 2009 US effective unemployment figures, Bureau of Labor Statistics "Current Population Survey" of employment (released July 2, 2009)

8. American Small Manufacturers Coalition

9. Alan S. Blinder, Gordon S. Rentschler Memorial Professor of Economics and Public Affairs at Princeton University, Co-Director of Princeton's Center for Economic Policy Studies, and Vice Chairman of the Promontory Interfinancial Network

10.  Peter Morici, Professor, Smith School of Business, University of Maryland School

Obama must act to curb executive greed
By Leo Hindery Jr.

Financial Times
June 24, 2009

Barack Obama was absolutely right a week ago when he demanded that the compensation of the executives, managers and traders at the failed financial institutions that received bail-out cash be scrutinised by a new "oversight council". He was right because these are the people who saddled the rest of us with a staggering $2,800bn (€1,990bn, £1,690bn) of trading and credit losses, and yet wanted to be paid as if everything was just swell.

But the US president and his advisers were wrong not to impose specific limits on executive compensation, rather than (mostly) just guidelines. They were especially wrong not to enact permanent limits that apply to all regulated financial institutions and all public companies.

The evidence is clear that excessive executive and management compensation lies at the root of all corporate crimes and misbehaviour, of most of corporate America's inattention to creating and preserving high-quality domestic jobs and fair overall employee compensation, and of almost all of the recent massive trading and credit losses. We are now far past the point where extreme disparity in compensation is primarily an ethical embarrassment: it has become a 30-year-old flesh-eating bacterium that is gnawing away at our economy.

In his speech, the president also said "executive compensation - unmoored from long-term performance and even reality - rewarded recklessness rather than responsibility". I agree, but then he went on to say that government's "role is not to disparage wealth, but to expand its reach". He should have added that its role is also to "ensure wealth's fair and equitable distribution".

In 1972, Reginald Jones, Jack Welch's predecessor at General Electric, which was then as now America's pre-eminent company, said in his maiden speech as chief executive that, while he fully respected the fact that his job was to keep GE successful on behalf of its shareholders, he had equal responsibility to employees, customers, communities and the nation. Notably, at no point in his speech did Jones identify management as a separate constituency; to him, managers were employees.

For the 35 years following the end of the second world war, executives such as Reg Jones viewed responsible and fair business behaviour as a critical component of the American dream.

During all these years, and during most of the past century, corporate leaders in the US earned 20 to 30 times as much as their average employees. Even today, the ratio of chief executive pay to average employee earnings in all other main developed countries has remained near this level. The ratio is still only about 22 times in Britain, 20 times in Canada and 11 times in Japan.

Beginning in the 1990s, however, many US executives, with the complicity of their boards, began to treat management as a separate constituency, often the primary one. Suddenly, fair executive compensation was abandoned in hundreds of corporations and financial institutions.

In America now, the average public company chief executive earns an almost unbelievable 400 times what his average employee makes. A few hundred thousand other executives and senior managers drink almost as heartily from the same frothy trough.

Mr Obama and Congress need to enact three changes in executive and management compensation practices, not just hope that some corporations - and not even all of them - will voluntarily "assess risk induced by [their] compensation practices".

First, Congress needs immediately to grant public shareholders the right to call shareholders' meetings, to vote out the current board and to pass binding (not simply advisory) votes on executive compensation.

Second, Congress should establish, for all public companies, a ceiling on individual executive compensation as a reasonable multiple of average employee compensation - say, 35 times - and then penalise through tax policies those companies that elect to pay anyone in excess of this multiple.

Third, Congress should empower the Treasury to oversee the compensation practices of any entity that is regulated, whether or not it currently relies on government guarantees. This should apply to employees at the individual trader level, too.

Mr Obama's proposals should be viewed as a positive first step, but much more needs to be done by Congress. When these three measures are enacted for all companies, the fair and balanced sense of corporate responsibility that so honourably distinguished our country for most of the 20th century - the one that Reginald Jones had in mind for us - can start to be restored.

The writer chairs the Smart Globalization Initiative at the New America Foundation and is former chief executive of AT&T Broadband. He swears that his own compensation has, with the exception of 2½ years of share-price-based bonuses, always stayed around the ratio he proposes

The Jobs Solution
By Leo Hindery Jr. & Donald W. Riegle Jr.

The Nation
April 2, 2009

All we really know about the financial industry bailouts and the economic stimulus plan are their enormous potential costs: at least $2 trillion combined, which is likely to balloon to $3 trillion or even $4 trillion, plus additional trillions of costly credit from the Federal Reserve, with very uncertain payback.

However, what is most immediately alarming about the bailouts and the $787 billion stimulus package are the daily indications that they still fall woefully short--in dollars and particularly in focus--of what is needed to confront the emergency economic conditions we face. And emergency conditions they are, with the US economy having contracted at an almost unbelievable annualized rate of 6.3 percent in the last three months of 2008, a terrible quarterly performance rivaled only four times since the Great Depression.

The nation is fairly resigned to the costly bailouts, but the stimulus plan is still not close to right: too small by at least half, not nearly timely enough in some of its spend-out rates and too underperforming against the only measure that really counts.

The plan's composition drastically overemphasizes small one-time individual tax cuts ($233 billion) and non-jobs-related spending ($261 billion). But causing most concern is that the 3.6 million jobs the plan is supposed to create or, mostly, just save over the next two years are not nearly as many as they seem to be. This number is less than the 4 million or so additional jobs expected to be lost in the next year (which will only go up if GM and Chrysler are forced into bankruptcy), and it doesn't even equal the number of jobs America needs to create just to stay even with population growth.

America's Human Capital

The right way to earn our way back to long-term prosperity is through stimulus efforts that will help develop, broadly deploy, fairly compensate and, especially, fully employ our human capital, which will always be our greatest source of national wealth. Only then will we have refired the commercial engines needed to recover from this dismal recession. And only then will we have addressed Americans' belief that unemployment is by far, with no close second, the most important economic issue facing the country.

We need an all-encompassing strategy on the massive scale we used at Normandy to win the war in Europe and that we later had behind the sweeping Marshall Plan to help rebuild Europe's broken economies. This time, however, our big-thinking strategy must be about creating the 24 million jobs that are missing so that American workers will be nearly fully employed.

We cannot accomplish this simply by pouring unlimited borrowed money into our economy on the flawed and unfair premise that it will "trickle down" to where it is needed. This is true whether the money is given to high-income individuals, as Presidents Reagan and George W. Bush did, or distributed in the form of massive bailouts to the big banks and Wall Street firms, as is happening now, with the hope (but not at all the promise) that these bailouts will lead to economy-enriching loans.

There are 12.5 million officially unemployed workers, and America's nominal unemployment rate is 8.1 percent. But these numbers tell less than half of an already dismal story that just keeps getting worse, with record increases in the number of Americans claiming unemployment and the highest number of officially unemployed workers on records dating back to 1967. When we more accurately and honestly include the 10.7 million workers who are underemployed--either part-time of necessity (8.6 million) or otherwise marginally attached (2.1 million)--and the 3.7 million who are in the "labor force reserve" (because they have abandoned their job search), then the unemployment rate rises to a staggering 16.7 percent.

In all, there are 26.9 million unemployed Americans, who have little or no financial safety net--and, sadly, there are several million more to come. With only 3 million job openings, mostly at the entry level, we cannot be at all surprised that our food kitchens are serving millions of people, our homeless shelters are filled to capacity and Hooverville-type tent cities are cropping up in every region of the country.

Only by finding these millions of missing jobs and realizing their enormous overall "multiplier effects"--every new job indirectly benefits the economy beyond the direct benefits of employment--can we recapture our living standards and continue to project our values and leadership around the world. And only with near-full employment and with a much reinvigorated manufacturing sector can we produce enough wealth to pay off our new debts plus Bush's massive $11 trillion debt legacy.

In his first inaugural address, President Franklin Roosevelt said that the nation's greatest task was "to put people to work." This same task falls on the shoulders of President Obama and this Congress. We believe that in the inevitable second round of economic stimulus, Obama and Congress should put nearly 100 percent of the monies toward creating immediately identifiable long-term, high-value, future-oriented jobs.

This emphasis should have dominated the just-enacted stimulus plan, but it didn't, and now even more millions of Americans urgently need jobs with wages and salaries that can support their basic needs and those of their families.

What the Heck Happened?

History teaches us that no nation can simply borrow its way to sustained prosperity. Nor does long-term prosperity ever come from disconnecting workers' wages from their productivity, or from a government's refusal to protect the right of workers to organize, to achieve decent working conditions and to receive a fair share of their productivity gains.

Yet this is exactly what has happened on and off for the past twenty-five years, as successive administrations gutted the progressive individual income tax in order to benefit high-income Americans; let most productivity gains go to those at the highest income levels, again through preferential tax policies; and ceased in any meaningful way to protect workers' rights.

As a result, our nation is saddled with an economy that for several decades has bounced from one credit-induced bubble to another. Income inequality is at its highest level since 1928; median wages have stagnated for more than a decade; and, significantly, our once vital manufacturing sector is swamped by our largely service-based economy, which moves incomes around the country but does little to improve our balance of trade.

Trade unions, which fostered and heavily sustained both the middle class and the balanced capitalist system in the United States, now represent only 7.6 percent of private-sector employees, down from more than 20 percent as recently as the early '80s. And instead of seeing gains in real wages earned through higher worker productivity, living standards for all but the wealthiest Americans have been artificially sustained for years by outsize mortgages, home equity loans and credit card debt, and by the growth in two-worker family incomes.

This long history of decoupling wages from productivity has also reduced individual savings rates and the aggregate savings needed for capital investment. Many employers have shrunk real wages and benefits while substantially dismantling the employer-based pension system. And in the public sector, excessive tax cuts for the wealthy have left our federal and state governments without the revenues needed to properly fund public education, healthcare and vital infrastructure investments.

And Don't Forget Trade

We also need to address immediately the decades of misguided trade policies that led to the transfer of millions of US workers from export industries into less productive and often lower-paying service jobs. In the 1980s, US-based global corporations, with the complicity of the executive and legislative branches, began to see their overseas operations not just as sources of raw materials but also as cheap production sites, invariably with much weaker environmental standards and fewer rights and protections for workers.

In January 1994 the North American Free Trade Agreement became the first legal embodiment of this major shift, followed a year later by the development of the World Trade Organization and then by the United States granting most-favored-nation status to China in 2000--in each case without securing nearly enough reciprocity and enforcement rights.

These misguided trade policies, combined with other countries' much less expansionary macroeconomic policies, triggered the most massive change in trade numbers in the history of any nation. America's willingness to pursue very expansionary monetary and fiscal policies, by contrast, has allowed many of these countries a "free ride" on our strong consumer demand. The massive $4.7 trillion goods-and-services trade deficit accumulated over just the eight years of the Bush administration--including a $3.6 trillion deficit in the extremely important manufactured goods category--made the US economy about $1.5 trillion smaller than it otherwise would have been. And without any meaningful reciprocal jobs creation here, we lost 4.5 million manufacturing and more than 2 million service jobs, most of them unfairly.

America's cumulative trade deficit since 1980 is an almost unbelievable $7.2 trillion. Those who scoff at the urgent nature of this problem have no real answers when asked how and when America will ever be able to pay off this obligation. And make no mistake, pay it off we must, just as we have to pay off this nearly $13 trillion that is soon to be the aggregate federal debt.

What Needs to Be Done

Working with those who understand the urgency of creating millions of high-value-added jobs--and the higher family incomes and tax revenues that will follow--the Obama administration and Congress need to "slipstream" behind the bailouts and develop long-term plans to support the renewal of manufacturing. These plans must be designed to stimulate business invention and innovation, and to spur productivity growth across the nation. The objective must be to find those 24 million missing jobs, and their centerpiece must be a much stronger nationwide commitment to healthy, well-educated and well-trained workers, especially in the manufacturing sector.

Congress must take steps to change our labor policies to foster a true high-wage economy. Over and above what is proposed in the new federal budget, this will require:

§ Immediate passage of the Employee Free Choice Act, which will allow workers to join unions without obstacles.

§ A national pension policy to restore adequate retirement savings.

§ Concrete efforts to restore the essential tax-policy link between productivity growth and wage gains, which will almost surely mean adopting a value-added tax of the sort nearly every other developed country already has.

§ A ten-year program of significant additional public investment to upgrade and rebuild our nation's infrastructure for the twenty-first century, which would create millions of jobs and make it easier for American-based companies to succeed in the global marketplace.

§ A very strong "Buy American" requirement related to all federal procurement, as Obama promised when he was campaigning. (We would never allow TARP money to go toward bailing out foreign-owned banks, so why, we must ask, is there obviously one set of rules for US banks and Wall Street institutions and a very different set for companies that produce their goods and services on Main Street?)

§ Major new tax incentives for businesses of all sizes to invest in state-of-the-art laboratories, domestic jobs-focused R&D, innovative products and follow-on manufacturing plants and equipment.

As Obama also proclaimed during the campaign, American workers are entitled to trade agreements that have meaningful labor and environmental standards, that forbid illegal subsidies and currency manipulation, and that are rigorously enforced. And it's time to dispense with "one size fits all" agreements that blindly ignore significant differences in states of development, forms of government and reciprocity. Congress also needs to:

§ Reauthorize and substantially increase Trade Adjustment Assistance and turn it into a remedial program that is not the displaced workers' "burial insurance" that it is right now.

§ Double the $117 billion in aid to state and local governments that was in the first stimulus plan, because every dollar to them represents jobs saved or created.

§ Authorize and substantially fund programs--like Roosevelt's Civilian Conservation Corps; later programs like VISTA and CETA; and the Serve America Act, which has already cleared the Senate--that will provide employment opportunities for this year's 6.4 million high school and college graduates, and for the graduates who follow.

§ Significantly expand job training for millions of young people to be skilled electricians, advanced welders and computerized machine tool operators, and create millions of complementary apprenticeships in manufacturing and the energy industry.

Jobs, Jobs, Jobs--24 Million More of Them, in Fact

The need for jobs creation is paramount and massive, and the task of meeting this need will be even greater. FDR had to find 13 million jobs during the worst of the Great Depression, and in 2009 we need to find 24 million, albeit in a much larger economy. But still, that's 24 million jobs!

Roosevelt knew that the answer for his administration would not be found only in the private sector, as ideal as that would have been and as much of a believer in capitalism as he was. The answer today won't be found only there, either.

In addition to the public jobs programs for the nation's youth and the training and apprenticeship programs that we have already called for, the administration and Congress also need to help create millions of jobs for the nation's adults: those who are young, approaching retirement and who were once retired but now need to go back to work.

Specifically, we need a large-scale program to create short- and medium-term jobs that complement those of the companies receiving stimulus-related contracts and subsidies, until these jobs can migrate to the private sector. With thoughtful use of tax policies, we must do everything we can to retain and strengthen the relatively few manufacturing jobs that remain. We need a program that emulates the best of the WPA and the TVA, and then we have to export this program to all fifty states. And we need aggressive public-sector employment initiatives, especially based around infrastructure construction and K-12 education.

None of the actions we call for will be easy to accomplish, nor will they come cheap. Yet we need all of them so that American workers can be fully employed in jobs that pay fair wages. We need them to rebuild, and sustain, the great commercial engines that fostered the broad American middle class of the past century and underpinned the global prosperity of the past quarter-century. We need them to bring an end to America's sorry status as the world's largest debtor nation. And we need them for our national and economic security.

An End to False Globalization
By Leo Hindery Jr. and Donald W. Riegle Jr.

Mother Jones
March 31, 2009

"The Obama team is hardly likely to make trade a priority," reports a recent article in the National Journal. "Their inclination is to let sleeping dogs lie," Ed Gresser, director of the trade project at the Progressive Policy Institute, told the magazine. Well, those sleeping dogs need to be awakened, because the results of globalization for the United States, and for many other developed nations, have simply not turned out as advertised.

It is not globalization's underlying premise that is flawed. Rather, the problem is that the US and many countries in Europe are on the receiving end of unfair (and sometimes illegal) subsidies, inhumane labor standards, poor environmental practices, and currency manipulation that are skewing outcomes and overwhelming our open competition approaches to trade. And our nation and our workers have been greatly harmed.

The world's developed economies aren't saying "no" to globalization or to free trade. Quite the opposite. All we are saying is that we can't accept predatory practices that distort outcomes to the detriment of our citizens.

When modern-day globalization was born in the early 1980s, we were told that new high-quality service jobs would generally offset any lost manufacturing jobs, and that, measured economically, our trade accounts would always be in or close to balance, which of course are the same two premises that Adam Smith put forth way back in 1776 in The Wealth of Nations.

Instead, the United States has had a persistent trade deficit, now in the hundreds of billions per year. America's cumulative goods and services trade deficit since 1980 is a stunning $7.2 trillion, according to the Bureau of Economic Analysis; 65 percent of this amount was accumulated during the Bush administration. Just these latter deficits alone have made the American economy about $1.5 trillion smaller than it would have been otherwise-money we could really use right now.

Our once vital manufacturing sector has diminished and now accounts for less than 7 percent of GDP. And just while Bush was president, we lost 4.5 million manufacturing and more than 2 million service jobs to countries overseas-contradicting the theory that a nation would never lose large numbers of both types of jobs at the same time.

Most Americans believe that our large ongoing deficits in trade are also eroding our national security and threatening our economic sovereignty, reports the National Journal. And they are right. Nations with increased financial leverage because of our trade-related overseas borrowings-particularly the oil-producing countries, and especially China with its nearly $2 trillion of foreign exchange reserves-are already demanding stronger assurances about our creditworthiness as the world's largest debtor nation, and more.

On March 13, for example, Chinese prime minister Wen Jiabao spoke at length of his worry about the "safety" of China's holdings of US Treasury bonds. On March 23, China's central bank governor warned that the world now actually needs a new currency to replace the dollar as the world's standard, because the developing world is unhappy with the role of the US in the world economy.

By way of counterargument to such ominous trends, we often hear that American consumers are benefiting from access to cheaper imported goods. Yet when the analysis is fairly done, the nation's overall trade-related losses in wages-from stagnant domestic wages and from millions of American jobs being offshored-clearly swamp the gains from these imports, notes the Center for Economic and Policy Research.

In the world today, there are two general sets of business and trade rules. One set resides in the older developed countries, such as the US and Europe, where companies still compete mostly on their own on the basis of their business acumen and product value differentiation. The other set resides in the world's largest emerging markets, where "champions" are often chosen to be a nation's global competitors and the full power of the state is then deployed to assist them.

These major emerging market countries-especially the BRICs (Brazil, Russia, India, and China) and some in Asia-have elaborate policies in place to protect their domestic employment and enterprises and to induce foreign corporations to shift their production facilities and technology to these countries.

Although there are visible results from these protectionist policies in all of these countries, China alone now accounts for about 60 percent of America's current trade deficit in manufactured goods (a staggering $277 billion in 2008), largely because of what many consider a severely undervalued currency and massive subsidies to its own manufacturers. As of 2005, a full 58 percent of its exports were made by so-called "foreign business enterprises."

And even in the midst of a global recession, America's trade gap with China just keeps getting worse-while US exports to China plummeted nearly 20 percent in January, imports from China fell only 1 percent, which left us with a massive $20.6 billion trade deficit in the latest recorded month alone, as usual mostly in manufactured goods.

It is clear that China and the US must quickly agree on a fundamental readjustment of our current bilateral trade relationship. The strategic threats to both countries, should we fail, are obvious, and one could argue that the threat to the US is already as great as the challenge of Afghanistan.

Many geopolitical experts are now predicting, and with good reason, that this century will prove to be China's. But for the overall health of globalization, it must be America's century as well-and the one does not need to preclude the other. What we need is a new bilateral economic formulation where the US and China thrive together, along with the world as a whole. And we can and must achieve this greater harmony between the vital interests of both countries.

This would be the wise path, but it is certainly not the one we are traveling now. For whenever political leaders endeavor to address our increasingly ominous trade patterns, they find themselves quickly attacked by corporations, lobbyists, and trade groups as panderers and protectionists. We must see these attacks for what they are: multinational business entities acting in their own interests, not anyone else's.

Enough sticking our heads in the sand when it comes to the plight of American workers. Protecting American jobs is not protectionism. Indeed, given how inextricably linked our economic security is with our national and military security, it is imperative for the United States to be as aggressive in defending its economic interests as our trading partners are in advancing theirs.

America's trade deals, without exception, need to

• Provide clear and measurable benefits for American workers;

• Reflect accurately the differences between countries in states of development, extent of the rule of law, and degree of reciprocity (i.e., one size does not fit all when it comes to trade agreements);

• Incorporate fair yet meaningful labor and environmental standards for our trading partners;

• Forbid illegal subsidies and currency manipulation;

• Provide maximum protection for companies' intellectual property; and

• Be rigorously enforced.

And then, as further actions,

• The United States Trade Representative needs to supplement its annual survey of foreign country trade barriers to include market distortions of any sort;

• The WTO needs to confront market distortions as aggressively as it addresses tariffs and other border measures, and it too must vigorously enforce trade agreements, including demanding parity of enforcement among all parties;

• The administration and Congress need to stimulate the rapid expansion of new jobs, especially manufacturing jobs, through enlightened corporate tax policies, and <em>not</em> encourage the offshoring of millions of American jobs through misguided ones. This means eliminating all of the current tax deferral incentives for US corporations to relocate production overseas.

• The administration and Congress need to cut taxes for all US manufacturers and give tax credits to US companies that invest in the skills of American workers, in R&D for jobs here at home, and in new machinery, equipment, and software.

There are two cosmic questions on the table. Will the United States start acting in its own strategic self-interest, as other nations clearly act in theirs, and regulate and direct key aspects of our economic activity toward our national ends? And will the US stop putting so much of our economic future, especially as it relates to trade, in the hands of multinational corporations that really fly the flag of no nation?

We say the answer in each case needs to be a resounding "yes." Otherwise, we will never be able to put a floor under our broken domestic economy, nor will we ever be able to restore the vibrant middle class, growing from the bottom up, that so proudly defined our economy and society for most of the last century.

Leo Hindery Jr. chairs the Smart Globalization Initiative at the New America Foundation and is formerly CEO of AT&T Broadband and its predecessors, Tele-Communications, Inc. (TCI) and Liberty Media. He is now an investor in media companies. He is the author of It Takes a CEO: It's Time to Lead With Integrity (Free Press, 2005). Former Senator Donald W. Riegle Jr. (D-Mich.), also a member of the Initiative, was chairman of the Senate Banking Committee and is chairman of government relations at a global advisory company.

Create jobs to rebuild America’s economy
By Leo Hindery Jr. and Donald Riegle

Financial Times
February 12, 2009

All we really know about America's several financial industry bail-outs and the stimulus plan is their enormous potential cost: at least $1,000bn in net cost to the Treasury for the bail-outs, another $1,000bn for stimulus and likely additional trillions of costly credit offered by the Federal Reserve.

 

America needs a bipartisan coalition on trade
Leo Hindery Jr. and Shanker Singham

Financial Times
November 6, 2008

In the past 15 years we have seen the almost complete unravelling of the bipartisan coalition on trade policy that once productively defined the modern free trade movement in the US. For many in each political party, this unravelling is welcome - progressives believe there has been too much wage stagnation and offshoring of jobs; conservatives that US companies have faced too much opposition to their international growth. Yet without another bipartisan coalition, the prospects for negotiating further trade barrier reductions around the world will be dim.

While the two of us approach trade from different political persuasions, we agree that America's trade deals need to follow three principles. They must provide clear and measurable benefits for American workers; they must be explicitly designed also to lift up workers around the world, which is the right thing to do morally and economically; and they must be realistic about country differences in terms of the rule of law and state of development - that is, one size does not fit all when it comes to trade policy.

We also agree that there are at least four planks on which the administration of Barack Obama, Congress, labour and business should have consensus.

First, that trade liberalisation, if fairly carried out, continues to hold enormous promise for the world's poor and for companies and workers, including American workers.

Second, that trade liberalisation is not fairly carried out if countries are allowed to distort markets through public sector restraints on trade, illegal subsidies or the anti-competitive operation of state-supported enterprises.

Third, that businesses must have maximum protection for their physical and intellectual property.

Fourth, that the US needs to invest substantial resources in clean energy, education and infrastructure to ensure that we keep our competitive edge and that our workers have the skills they need to fill the jobs of the future.

In the world today, there are two sets of business and trade rules. One set resides in the developed countries, such as the US and Europe, where companies compete largely on the basis of business acumen. The other set resides in the world's largest emerging markets, where national champions are chosen to be global competitors and the full power of the state is deployed to assist and sometimes own them. US workers are suffering because our open competition approach is being swamped by some of our competitors' more mercantilist, often unfair and sometimes even illegal practices.

Emerging market countries, especially Brazil, Russia, India and China (the Brics), and some Asian countries, have economic policies to retain and improve the quality of their existing jobs and induce foreign corporations to shift production facilities and technology to them. Faced with these practices, foreign companies cannot be successful on their merits, even when they are given so-called "market access".

It is imperative - way past time, in fact - for America to be as aggressive in defending its economic interests as our trading partners are in advancing theirs. Specifically, the US trade representative should supplement the annual survey of foreign country trade barriers to include market distortions of any sort. Also, the World Trade Organisation must confront market distortions as aggressively as it addresses tariffs and other border measures and it must enforce vigorously our trade agreements, including demanding "parity of enforcement" among all parties.

Domestically, we must encourage new jobs through enlightened corporate tax policies and stop encouraging the offshoring of millions of US jobs through misguided ones. Also, by eliminating the tax deferral incentives for corporations to relocate production overseas, we can mitigate government complicity in aiding offshoring.

Finally, we should cut taxes for all US manufacturers and give tax credits to US companies that invest in the skills of American workers, in research and development for jobs here at home, and in new machinery, equipment and software.

Leo Hindery Jr is a Democratic party trade and economic policy adviser and chairs the Smart Globalisation Initiative at the New America Foundation. He is managing partner of a media industry private equity fund. Shanker Singham was a senior trade adviser to Republican presidential candidate Mitt Romney. He is chair of the International Round Table on Trade and Competition Policy, and leads the Market Access/WTO group of Squire, Sanders & Dempsey

'Good cop, bad cop' needed
By Leo Hindery Jr., David Sirota

San Francisco Chronicle
February 14, 2007

The "good cop, bad cop" routine doesn't just make for good TV, it is also an important negotiating strategy in business and economics. The "good cop" can finesse the adversary and offer up deals and agreements -- while citing the "bad cop" as the reason he must stay firm. Unfortunately, when it comes to America's international trade policy, we have had only the "good cop" president as the negotiator -- and not enough of a "bad cop" in Congress, making sure our presidents hold the line on labor, human rights and environmental issues. The result has been a trade policy too freely giving away access to America's markets and contributing to the loss of millions of jobs.

Now, President Bush wants to solidify this unfair trade policy for good. Last month, the president asked Congress to renew, without any standards or conditions, "fast-track" negotiating authority so the White House can use near-unilateral power to negotiate international trade pacts. Congress would be only permitted to accept them without amendment or reject them outright. In the uneven global economy, this fast-track authority has eliminated the dynamic whereby presidents can cite Congress and its obligations to citizens as the reasons they must demand strong labor, human rights and environmental standards in our foreign trade agreements. Consequently, American workers are being forced to compete against foreign workers who are without International Labor Organization standards and against companies that pollute the world's air and water.

American workers' wages are stagnating and their benefits are being slashed, as standards-free trade agreements make them face the "Hobson's choice" of either accepting these cuts or watching their jobs get shipped overseas.

More often, there is no choice. Look at what happened in Millen, Ga., in 2006. Less than a year after President Bush used fast-track authority to pass the Central American Free Trade Agreement (CAFTA) with no wage or environmental standards, Jockey International announced it was permanently closing its textile plant and eliminating 200 jobs in the town. Where were the jobs going? Central America.

Thanks to fast-track authority, Congress was unable to write those standards into CAFTA, and the company was thus given a free pass to exploit the $2-a-day labor and lax environmental laws of our neighbors to the south.

And thanks to fast track, you can bet what happened in Millen is happening everywhere with our standards-free trade policy.

Now that the Democrats have regained control of Congress, there is an opportunity to help President Bush -- and all future presidents -- negotiate more level playing fields for American workers.

Already, some parts of the executive branch seem to appreciate the potential change. Deputy U.S. Trade Representative John Veroneau told potential trading partners last month that they will need to make "substantive adjustments" to labor and environmental provisions in pending trade accords in order to overcome scrutiny by the new Democratic Congress. Sadly, the Bush White House immediately retracted Veroneau's statement.

If Congress is serious about reforming our trade policy so that it lifts both the American and the world economies, then lawmakers must refuse President Bush's request to extend fast-track authority. At the same time, Congress must enact legislation to separate trade negotiations from trade-agreement enforcement.

Refusing to reauthorize fast-track authority and strengthening trade-agreement enforcement is not anti-trade, just as protecting jobs is not protectionism. But what is assuredly anti-American worker are foreign-trade agreements without worker and environmental protections.

In business, the two-pronged, tag-team approach often wins at the negotiating table. Our Founding Fathers, who created the presidency and Congress as co-equal branches of government, likely understood that the same principle would eventually work well on the international stage. That's why the most constructive role congressional Democrats can play right now when it comes to America's position in the global economy is to help our presidents get the best deals for our nation's workers by restoring the "good cop, bad cop" dynamic and rejecting President Bush's request for fast-track trade authority.

Leo Hindery Jr. is managing partner of InterMedia Partners, a major private equity firm in New York City, and chair of the Horizon Project, a business and policy leaders group that develops policy recommendations for the 110th Congress. David Sirota, a bestselling author, is co-chair of the Progressive States Network, a research and advocacy organization that supports state legislators.

 

Renewing America's 'contract with the middle class'
By Leo Hindery Jr.

Los Angeles Times
September 1, 2008

Not all that long ago, America's prominent business and government leaders widely believed that our nation's prosperity depended on a strong middle class growing from the bottom up. Workers were rewarded for their hard work with fair wages, benefits and advancement opportunities -- and our economy and our national security were much stronger for it.

Henry Ford certainly knew this, and often said that his company would prosper only if his workers earned enough to buy the Fords they produced. And in 1953, when General Motors' president told the Senate that "what was good for the country was good for General Motors and vice versa," he was simply stating the then-commonly held belief that success for American corporations generally meant success for America and American workers.

However, over the last 25 years -- especially over the last decade -- what is good for America and what is good for much of corporate America have gotten way out of sync. Our current business culture too often emphasizes only short-term corporate profits and shareholder returns -- however and wherever they are generated -- and in the process, what is good for America is being pushed aside.

This disconnect between the national interest and corporate responsibility and interests has helped shatter the "contract with the middle class." And in the most painful measure of just how broken this contract is, based on data from 2005-2006, the top 1% of Americans -- 300,000 -- earn as much as the bottom 150 million combined. Income inequality is the greatest it has been since 1928, and for every three-year period since 1981, the top 1% of taxpayers have gained, on average, $100 billion in total earnings, while the bottom 80% have lost $100 billion.

Corporate America frequently justifies its actions, however harmful those actions may be to workers and to the local and national economies, as necessary to remain competitive globally. But globalization doesn't have to mean more job insecurity, stagnant wages for workers and little or no health care coverage for 75 million people. It doesn't have to mean threats to move jobs overseas and slashed benefits just because multinational corporations have almost complete mobility of capital and technology and American workers have almost none. It doesn't have to mean excessive executive compensation and preferential corporate and personal taxes. And it doesn't have to mean unfair trade practices of the sort that are contributing greatly to the extreme income inequality.

Our overseas trading partners have generally gone in a completely different direction. These countries have instead instituted economic policies to hold on to and improve the quality of their existing jobs and to induce foreign corporations to shift production facilities and technology their way. This is particularly the case throughout Asia. In China, for example, 60% of its exports come from "foreign-invested companies."

It is imperative -- way past time, in fact -- for America to be as mercantilist as are our trading partners. We must forcefully counter the illegal subsidies, the manipulated currency exchange rates and the unfair labor and environmental practices that some of them are employing to strike at our economy. Domestically, we must stop encouraging the offshoring of millions of American jobs through misguided corporate tax practices. Indeed, what other country would give tax breaks to companies shipping high-quality domestic jobs overseas and hoarding their foreign profits?

At the same time, we need to get "back to the future," where success for American corporations again means success for American workers, and where corporations are again managed with concurrent and equal responsibility to shareholders, workers and the public.

We must reform corporations from the inside by strengthening the voices of workers and shareholders. And we must reform them from the outside by limiting excessive executive compensation and by increasing transparency and accountability.

The next president and Congress need to put forward and advance a new "corporate responsibility contract" based on five reforms that will help reestablish the contract with middle-class America.

We need to modernize labor laws to give workers more of a voice. To help the 60 million workers who research says would join a union if they could, Congress must pass the proposed Employee Free Choice Act to let workers organize when a majority of them sign union cards. This legislation needs to apply to part-time and contract workers as well, and there must be quicker and tougher penalties for breaking labor laws.

We need to strengthen shareholders' rights, including the right to render advisory votes on executive compensation, to call shareholders' meetings, to recall a limited number of directors and to gain proxy access to candidate slates for boards of directors.

We need to ensure that pension promises are kept and make it much tougher to dissolve collective-bargaining agreements and raid pension plans. And retirees who have lost health and pension benefits should be reimbursed with proceeds from any future asset sales.

We need to limit excessive executive compensation. Executives should not be paid more than a reasonable multiple of average employee compensation, and, along with hedge fund and private equity managers, they should be fully taxed on their earnings at the same income tax rates that apply to their workers. Congress must also close the tax loopholes that allow executives to shelter massive amounts of earnings using both accounts overseas and tax-free deferred compensation plans here at home.

Finally, we need to create public accountability through greater transparency. Congress needs to enact a new corporate disclosure law requiring all major businesses to disclose, in annual reports to shareholders and regulators, easily understandable information regarding stock options, deferred compensation, pensions and personal benefits as well as information regarding their lobbying activities, political contributions, government contracts and subsidies, major environmental impacts and foreign supply-chain conditions.

Everyone needs to pitch in to help right the economic ship, not least of which are America's corporations. Only then will a vibrant middle class growing from the bottom up again be our economic beacon and our example to the world.

Leo Hindery Jr. is currently managing partner of a New York-based media industry private equity fund. He chairs the Smart Globalization Initiative at the New America Foundation and is an unofficial economic advisor to Democratic presidential nominee Barack Obama.

Are Free Trade Policies Working?
Testimony of Leo Hindery, Jr.

April 18, 2007
Senate Commerce Subcommittee on Interstate Commerce and Tourism

I am Leo Hindery, Managing Director of InterMedia Partners. I have previously served as the CEO of TCI and AT&T Broadband. Recently, I chaired The Horizon Project, a group of eleven CEOs and policy specialists that produced a report to Congress on what we believe needs to be done to protect America's prosperity in this era of globalization.

Thank you, Mr. Chairman and Senators, for convening this important hearing on current U.S. trade policies. My own concerns about these policies manifest themselves in the nation's record - and still growing - trade deficit, in the disappearance of valuable chunks of our economy due to the callous offshoring of millions of American jobs with many millions more certain to follow, and in the adverse national security implications of certain of our trade practices.

The United States is now the only major net consumer in the global economy, with a current account deficit in 2006 of $857 billon, which is a staggering 6.5% of GDP. And this huge deficit does not include the estimated $200 billion of taxable foreign subsidiary earnings being masked each year by misallocations and obfuscating accounting.

More than five million American jobs have been lost to offshoring in just the past six years: three million manufacturing, and two million service and IT-related. Looking ahead, more than 14 million of the roughly 141 million civilian non-self employed jobs in America today will be off shored over the next 10 years, including 7.0 million more manufacturing jobs, 3.3 million more service jobs and 3.4 million more IT jobs. And these are very conservative estimates according to Alan Blinder, vice chairman of the Federal Reserve during the Clinton administration.

And in the process of exporting high-tech manufacturing jobs, the U.S. is also indirectly exporting important aspects of its national security. The United States has a $50 billion annual trade deficit with China alone for "Advanced Technology Products", and from a U.S. national security perspective DRAM, SRAM and ROM chip manufacturing is now grossly over-reliant on China, Taiwan and South Korea. Many of these items are essential to our high-tech weaponry and national defense.

For free trade to be fair trade, Senators, it must be rules-based, and these rules must be followed. But right now many major U.S. trading partners are breaking the rules through massive currency, tax and capital subsidies and through unfair labor and environmental practices.

For each of the past 22 years, pursuant to the Trade Act of 1974, the Office of the U.S. Trade Representative has submitted an annual report to Congress surveying significant trade barriers to U.S. exports. According to the USTR, there are ten categories of trade barriers ranging from tariffs to bribery.

But nowhere in this survey of foreign barriers to U.S. exports, Senators, is there any serious treatment of non-ILO labor practices, of non-existent or de minimis environmental standards, or, especially, of subsidies and currency manipulation.

If the USTR'S report in 2007, which is called the NTE, is overlooking the most adverse trade barriers, then it should come as no surprise that we as a nation are getting absolutely killed in our trading with China, India and Japan.

Two cases in point:

The Semiconductor Industry Association has recently calculated that the combined tax and capital subsidization of China's high-tech industries is now so extreme that only about 10% of the overall cost difference vis-à-vis American manufacturers is labor cost-based and that 90% is tax and capital grants-based.

In turn, despite Treasury Secretary Paulson's contention on February 10 that "the Japanese yen's value is set...based on underlying fundamentals", Senators Levin and Stabenow and Congressmen Dingell and Levin have concluded that in fact the Japanese government is artificially depressing the yen to such a degree that Japanese automakers are realizing an effective subsidy of roughly $8,000 per car.

To personalize further how foreign subsidies and illegal trade practices are crushing American workers, I would like to briefly discuss Intel and Citigroup, each of which is a leader in its respective field.

Intel's announcement on February 12 of its new programmable teraflop superchip was rightly hailed as a success for American innovation. But this euphoria turned into just more pink slips for American high-tech manufacturing workers when a month and a day later, on March 13, Intel announced that it will now build in China a massive $2.5 billion chip fabrication shop, propped up by an announced $1 billion subsidy from the Chinese government and by many other subsidies that Intel and China did not want to announce.
And then there is Citigroup, which confirmed last week that at the same time it is eliminating 7,000 American jobs, it is, even more notably in my opinion, offshoring an additional 9,500 American jobs primarily to India, where it already has 22,000 employees working in highly skilled areas like research, investment banking and credit analysis. The bank announced these relocations and cuts with absolutely no expressed remorse for the American workers affected, and it certainly did not discuss the extensive subsidies it is receiving from the Indian government as inducements for offshoring another 10,000 jobs.
Greatly informing all of my comments today is the reality that the U.S. goods trade deficit with China alone is now a staggering $232.5 billion. In 2006 we exported $55.2 billion of goods to the Chinese, but they in turn exported $287.8 billion of goods to us. This ongoing imbalance in trade with China has left that country with foreign exchange reserves of an unprecedented $1.2 trillion, up 37% just since this time last year. China is now, by far, the largest source of funding for U.S. government deficits.

As I have commented, China's real trade advantage results not from its criminally low wages, but from tax breaks and from subsidies, including currency manipulation, grants and low-cost loans given to companies that have no intention and sometimes not even an obligation to pay them back. And to these benefits China adds tariffs, standards abuses, intellectual property thefts, policies favoring domestic production, and market access conditioned on local production or intellectual property transfers.

In recent days, the Executive Branch has, finally, begun to wake up to some of the specific trade problems with China and to initiate some long overdue responses. But as we go forward, the Administration, working closely with Congress, must take additional steps to ensure that our trade agreements with all countries are fair and vigorously enforced, that high value-added jobs in the U.S. grow, and that there continue to be substantial investments in worker skills.

To these ends, I recommend that this Subcommittee consider four actions:

1) Take actions against illegal and unfair trade practices.
Congress should require that the annual NTE survey by the USTR include, as defined trade barriers to U.S. exports: subsidies; currency manipulation; non-ILO labor practices; and weak or non-existent environmental standards. In turn, the USTR should be specifically charged with prosecuting all meaningful illegal violations, and, expanding on a proposal already made by Senator Stabenow, any U.S. company should be permitted to petition for tariffs on imports from countries that materially benefit from such subsidies, keep their currencies depressed, or do not have ILO labor and minimum environmental standards. Finally, there should be no renewal by Congress of fast-track Trade Promotion Authority, or TPA, without requiring that all future trade agreements approved under TPA incorporate such labor and environmental standards.

2) Strengthen trade agreements enforcement.
Trade agreements are only as good as the resources brought to bear to enforce them, but in the last six years the U.S. has filed an average of only three WTO cases a year, versus an average of eleven per year during the Clinton administration. In response, Congress should transfer responsibility for evaluating and prosecuting trade agreements violations from the office of the USTR to a new Division at Justice headed by an Assistant Attorney General for Trade Enforcement. Congress should also insist on "parity of enforcement" among all trade agreement requirements, whether commercial or otherwise.

3) Cap on the nation's trade deficit.
As already proposed by Senators Clinton and Dorgan, Congress should enact limits, expressed as percents of GDP, on both the yearly trade deficit and the accumulated trade debt. When any such limit is exceeded, the Executive Branch must then immediately initiate actions to bring the deficit back in line.

4) National security protection legislation.
To stop the export of important aspects of our national security, Congress should enact legislation requiring that manufacturing activities which have national security implications and are proposed to be off shored be subject first to a "national security impact statement".

In addition to these four trade-related recommendations which are under the purview of this Subcommittee, I recommend that the Senate Finance Committee consider, in a revenue neutral fashion, correlating the corporate tax rate on the profits of the nation's larger manufacturing and technology services companies with the average value-added of their U.S. employees. The corporate tax rate for these companies would be reduced on a sliding scale based on their value-added standing relative to the median of the particular business sector in which they operate.

Since most of the value that such a corporation adds to its products and services reflects the wages and benefits it pays its employees, this corporate income tax change would be a significant financial incentive for a corporation to boost its average wage to non-executive employees through productivity gains and by investing in worker skills and capital equipment.

As a final recommendation, Congress should also undertake to eliminate tax deferrals on foreign profits, and to reform foreign subsidiary tax allocation rules to prevent corporations from reducing their U.S. taxable earnings by misallocating expenses such as interest, R&D and overhead, both of which greatly exacerbate the offshoring of jobs and the trade deficit.

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How well the Executive Branch and Congress respond to the significant challenges confronting the American economy will substantially determine whether our nation continues to be the preeminent economic power in the world, or whether it will experience declining political influence and economic leadership. Only by fully understanding how globalization and current U.S. trade policies are affecting America's economic well-being can we craft future policies that will advance the welfare of all Americans. Hopefully, Senators, my recommendations will help you in this task, in ways that preserve the principles of a vibrant middle class, economic growth and mobility, innovation, and economic and social justice.

Thank you for this opportunity.