Is This the Era of the New Neo-Mercantilism?

09 Feb 2017 8:37 AM | Mike Lillich (Administrator)

By Oren Levin-Waldman

First published online in The Yonkers Tribune.

The global economy is very much a product of the neoliberal policies pursued since the end of World War II. These policies stressed free trade, open borders, less government spending, privatization, and flexible wages. If unions stood in the way of wage flexibility, capital mobility across national borders would serve to weaken them by exporting union jobs. It was assumed that these ingredients would lead to greater prosperity.

Although there is no reason to believe that Trump’s cabinet picks signals a reversal of these policies, especially his anti-labor pick to be Secretary of Labor, the question nonetheless arises as to whether we may be seeing the birth of what could be called neo-mercantilism. The old mercantilism involved the placement of overall national economic interests above those of the summation of self-interests. This meant policies that protected industries could be pursued for the sake of the national good.

Because protectionist policies have long been viewed as an obstacle to growth and prosperity, there has been a focus on free trade. If we can sell more American goods and services abroad the nation as a whole will be more prosperous. Free trade, however, means that cheap foreign goods enter into the American market, and while this may be good for American consumers, it may not be good for the American worker.

The challenge that free trade agreements in a global economy pose is that in order to be competitive with other nations where wage rates are significantly lower, wage rates inevitably have to fall. The only way to counteract the impact of lower wages in another country which could significantly lower the overall price is to impose an import tariff so that the price of American produced goods and foreign produced goods are nearly equivalent.

In recent weeks, however, we have been hearing about U.S. companies following meetings with President Trump agreeing to stay in the U.S.. This may have begun with the decision by Carrier not to move its Indiana operations out of the U.S.. Despite whatever deal may have been struck by then President-elect Trump and the company, this was viewed as a positive development. Of course the neoliberal choir decried the deal on the grounds that Carrier’s labor costs would be considerably higher and this was simply contrary to economic common sense.

The new administration appears to telling CEOs that it will reduce regulation, but if they take jobs abroad, their imports back into the country will be hit with a high tax. The idea of putting the American economy first is not a new idea. It is very much a mercantilist concept. And after years of neoliberalism, it appears to be the foundation of what will be referred to as neo-mercantilist economic policy.

In the past when lawmakers attempted to pass restrictive legislation on capital mobility making it more difficult for plants to close in the U.S., the argument against such attempts was that such legislation violated the spirit of free trade. Restrictions on plant closings, they said, would amount to nothing more than restrictions on plant openings. Moreover, it violated the property rights of managers in a free market economy to dispose of their property as they saw fit.

A dynamic capitalist economy, it was argued, required “creative destruction” whereby the old and obsolete would be replaced by the new and technologically more advanced. This creative destruction, after all, was merely finding expression in plant closings and capital mobility, which were really part and parcel of neoliberalism.

Creative destruction always assumed that those who were displaced would merely be reabsorbed back into the economy. Although many were, it was a reabsorption into a lower paying service economy. The low-skilled factory jobs were replaced by low-skilled service jobs, but low-skilled service workers did not have labor market institutions like unions to bolster their wages.

Because many of the new jobs were also requiring greater skill, we saw a widening gap between highly educated/skilled and paid workers at the top and poorly educated/skilled and paid workers at the bottom. To a large extent the 2016 election represented a populist rejection of the neoliberal policy agenda. Policies that simply benefit financiers and don’t help Main Street cannot stand. Free trade policies that allow imports to accompany the export of American jobs are simply unacceptable. Jobs that don’t pay respectable wages are simply un-American.

Nobody campaigned for the explicit continuation of neoliberal policy, but they did campaign for key elements of it, most notably Trans-Pacific Partnership (TPP) and open borders. The same voices are arguing against renegotiation of NAFTA. Neo-mercantilism essentially holds that after the destruction is left in the wake of neoliberalism it is time to place the national economic interest above the interests of separate corporate interests.

There is no reason that a corporation that gets billions of dollars each year to build weapons systems for the Defense Department should not be required to keep its consumer producing operations in the U.S. as a condition of the defense contract. If firms want tax breaks, they should be conditioned on keeping jobs here in the U.S.. If Congress wants to offer a stimulus package to consumers, how about a rebate of say $3,000.00 per family on the condition it be spent on goods and services in the U.S. within 90 days? If you simply want to throw it in the bank, then you lose it.

More needs to be done. We still need to restore labor market institutions like unions and minimum wages in order to bolster the wages of service workers. While we can certainly attempt to prevent more jobs from leaving, we still need to accept that the service sector is in the Twenty-First Century what the manufacturing sector was in the early part of the Twentieth Century. Service workers need to be organized on an industry wide basis for the same reasons that factory workers were organized during the late Nineteenth Century: to afford workers dignity in their work. This dignity would come about through the bolstering of wages.

Neo-mercantilsm, then, can be differentiated from the old mercantilism by not only placing the national economy first, but by placing workers first. Were we to build an economy where a premium was attached to workers, we would then see a full repudiation of the neoliberal policies that not only gave us the global economy, but the rising levels of income inequality we have seen over the last several decades. Whether voters were aware of it or not, they appear to have voted for a more neo-mercanilist agenda.

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