Making It

Although Vince Cable, with my emphasis added, does not on his own constitute an alternative Government, Ken Clarke's presumably disparaging description of him as "a social democrat" is clearly quite correct:

Does trade matter? Should we be bothered if Britain has a whopping deficit in manufacturing trade? Well, yes, we should. A problem which haunted a generation of political leaders and chancellors is returning in a new form. For a long time the country’s balance of payments disappeared as an issue: something that belonged to the era of steam trains, black and white TVs, The Beatles and Harold Wilson’s pipe.

Except for a few, unhappy years in the European Exchange Rate Mechanism – remember Black Wednesday? – our sterling exchange rate has floated against other countries’ and, as a consequence, the balance of payments has, sort of, balanced itself. If the trade deficit or the overall payments deficit got too big the pound could fall to help exporters and vice versa. A good theory. One less headache for Chancellors.
But there is a problem.

When I spoke at a conference of British manufacturers last week someone showed me a chart that described how, after being broadly balanced for half a century, in the decade after 1997 Britain’s balance of trade plunged to £60billion – five per cent of our economy. This was the boom time on our Fantasy Island when imported goods were consumed on credit and exports suffered. Another £20billion or so went on travel. Much of this deficit was paid for by financial services: banks and the rest of the City. But, as we have painfully discovered, banking is not some London-based El Dorado, pouring out everlasting riches for the economy to consume, but a highly precarious, risky industry that ultimately collapsed in a heap, and which we rescued.

The economist part of my brain says this problem will sort itself out because the pound will fall to make British manufacturing more competitive. The pound has indeed fallen – by 28 per cent against other currencies since before the credit crunch. Unfortunately the latest trade data tells the opposite story: exports in January fell (the worst monthly fall for eight years) and the deficit deteriorated.

One explanation for the January disappointment is that the developed world markets to which we export are also growing very weakly or not at all. For all the talk about the new ‘gold rush’ to Asia and other emerging markets, trade with Ireland is larger than with China, India and Brazil combined. The euro area generally is struggling, the US is also faltering badly. World trade fell by 12 per cent last year.

So we have countries (like ours) trying to boost their economies through ‘export-led growth’ – but there aren’t buyers at the moment. However, there are causes for hope and celebration – impressive British manufacturers who have survived and who are battling on. A couple of weeks ago I visited Cosworth in Northampton. This company makes the engines for four of this year’s F1 teams and has branched out into various specialised areas of engineering where it is as good as anyone in the world. On top of this, the firm is producing apprentices.

Last week I had lunch with an entrepreneur from Leicester who makes bushes for large electric insulators exported around the world, including to China. A firm in my constituency also sells much of its production – a key component of wind turbines – to China. In Luton, I met an impressive businessman who set up a company turning plastic waste into a substitute for plywood – a new British technology. His customers want far more than he can produce.

These manufacturers have several things in common: advanced technology; high-quality specialist products; totally committed British managers and owners; and loyal, highly skilled workers. There are many success stories – in biotechnology and pharmaceuticals, information technology, TV, music and computer games, as well as specialised manufacturers. But there aren’t nearly enough of them. To turn Britain back into a successful manufacturing country, part of what is needed is a cultural change: a respect for people who make things and for businessmen and women who invest their money in genuinely wealth-creating industries.

The Government should not be involved in picking winners. There was too much of that in the past and a lot of money was wasted. What the Government can and should concentrate on is ensuring that young people are educated to a standard where they are trainable and employable. It can and should encourage teenagers to see the value of vocational training in technical colleges as an alternative to university, which for many is becoming an expensive route to unemployment. And it is the Government’s job to ensure that there is a functioning infrastructure – transport, ports, energy, digital – which is why I believe we need an infrastructure bank.

Unless these things are done, creating a platform for a manufacturing revival, there will be no base for Britain to pay its way in the world and those old worries about the balance of trade, and payments, will reappear – with a vengeance.

While Put Buchanan, whether or not he would necessarily say so himself and again with my emphasis added, therefore disproves Clarke's implicit suggest that a social democrat cannot be a conservative, Clarke himself being neither:

Though Bush 41 and Bush 43 often disagreed, one issue did unite them both with Bill Clinton: protectionism. Globalists all, they rejected any federal measure to protect America's industrial base, economic independence or the wages of U.S. workers. Together they rammed through NAFTA, brought America under the World Trade Organization, abolished tariffs and granted Chinese-made goods unrestricted access to the immense U.S. market.

Charles McMillion of MBG Information Services has compiled, in 44 pages of charts and graphs, the results of two decades of this Bush-Clinton experiment in globalization. His compilation might be titled, "Indices of the Industrial Decline and Fall of the United States." From 2000 to 2009, industrial production declined here for the first time since the 1930s. Gross domestic product also fell, and we actually lost jobs. In traded goods alone, we ran up $6.2 trillion in deficits — $3.8 trillion of that in manufactured goods.

Things that we once made in America — indeed, we made everything — we now buy from abroad with money that we borrow from abroad. Over this Lost Decade, 5.8 million manufacturing jobs, one of every three we had in Y2K, disappeared. That unprecedented job loss was partly made up by adding 1.9 million government workers. The last decade was the first in history where government employed more workers than manufacturing, a stunning development to those of us who remember an America where nearly one-third of the U.S. labor force was producing almost all of our goods and much of the world's, as well.

Not to worry, we hear, the foreign products we buy are toys and low-tech goods. We keep the high-tech jobs here in the U.S.A. Sorry. U.S. trade surpluses in advanced technology products ended in Bush's first term. The last three years we have run annual trade deficits in ATP of nearly $70 billion with China alone. About our dependency on Mideast oil we hear endless wailing. Yet most of our imported oil comes from Canada, Mexico, Venezuela, Nigeria and Angola. And for every dollar we send abroad for oil or gas, we send $4.20 abroad for manufactured goods. Why is a dependency on the Persian Gulf for a fraction of the oil we consume more of a danger than a huge growing dependency on China for the necessities of our national life?
How great is that dependency?

China accounts for 83 percent of the U.S. global trade deficit in manufactures and 84 percent of our global trade deficit in electronics and machinery. Over the last decade, our total trade deficit with China in manufactured goods was $1.75 trillion, which explains why China, its cash reserves approaching $3 trillion, holds the mortgage on America. This week came a report that Detroit, forge and furnace of the Arsenal of Democracy in World War II, is considering razing a fourth of the city and turning it into farm and pastureland. Did the $1.2 trillion trade deficit we ran in autos and parts last decade help kill Detroit?

And if our purpose with NAFTA was to assist our neighbor Mexico, consider. Textile and apparel imports from China are now five times the dollar value of those imports from Mexico and Canada combined. As exports are added to a nation's GDP, and a trade deficit subtracted, the U.S. trade deficits that have averaged $500 billion to $600 billion a year for 10 years represent the single greatest factor pulling the United States down and raising China up into a rival for world power.

Yet, what is as astonishing as these indices of American decline is the indifference, the insouciance of our political class. Do they care?

How can one explain it?

Ignorance of history is surely one explanation. How many know that every modern nation that rose to world power did so by sheltering and nurturing its manufacturing and industrial base — from Britain under the Acts of Navigation to 1850, to protectionist America from the Civil War to the Roaring Twenties, to Bismarck's Germany before World War I, to Stalin's Russia, to postwar Japan, to China today? No nation rose to world power on free trade. From Britain after 1860 to America after 1960, free trade has been the policy of powers that put consumption before production and today before tomorrow. Nations rise on economic nationalism; they descend on free trade.

Ideology is another explanation. Even a (Milton) Friedmanite free-trader should be able to see the disaster all around us and ask: What benefit does America receive from these mountains of imported goods to justify the terrible damage done to our country and countrymen? Can they not see the correlation between the trade deficits and relative decline?

Republicans seem certain to benefit from the nation's economic crisis this November. But is there any evidence they have learned anything about economics from the disastrous Bush decade? Do they have any ideas for a wholesale restructuring of U.S. trade and tax policy, for a course correction to prevent America's continuing decline? Has anyone seen any evidence of it?