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State of The Union Objective: Jobs or Reelection?

Stephen Diamond: A real jobs strategy requires higher wages in China and the US

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington. Tuesday night, President Obama will deliver his State of the Union address. A few days earlier, he released a video which gave a taste of what’s to come. Here’s a little bit of it.

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BARACK OBAMA, US PRESIDENT: Here’s the truth about today’s economy. If we’re serious about fighting for American jobs and American businesses, one of the most important things we can do is open up more markets to American goods around the world. And as a result of deals we completed this week, we’ll be increasing US exports to China by more than $45 billion and China’s investment in America by several billion dollars. Most important, these deals will support some 235,000 American jobs–and that includes a lot of manufacturing jobs. That goal is why I fought so hard to negotiate a new and better trade deal with South Korea.

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JAY: Now joining us to give us his take on President Obama’s prescription for jobs is Stephen Diamond. He joins us from Santa Clara, California, where he teaches law at Santa Clara University in Silicon Valley. He specializes in corporate finance, securities law, labor law, and international economic issues. Thanks for joining us, Stephen.

STEPHEN DIAMOND, ASSOC. PROF., SCU SCHOOL OF LAW: Thank you, Paul.

JAY: So what do you think? The cure to the employment crisis is more exports?

DIAMOND: Well, it may be the cure to President Obama’s political future, which I think is what is really going to drive tonight’s speech. Whether it has any impact in the economy remains to be seen, and I’m pretty doubtful.

JAY: Why?

DIAMOND: First of all, the themes he’s raising make me think, gosh, he really wishes he lived in the late 1990s. But he’s not likely to have the same kind of luck that President Clinton had coming up for his second term. The emphasis is on competitiveness, on trade, on innovation, these are the themes of the ’90s. It’s the globalization theme. It’s the idea that the US model can triumph on a global basis. But we’ve just gone through the worst crisis in the history of the American economy, practically, and there are real big holes in that American model. There’s nothing that I’m hearing so far about what the speech is likely to do to fix any of those holes, and we’re really digging ourselves in deeper.

JAY: He cites the big aircraft contract, particularly to China, which makes up the bulk of this new China exports, and he says that’s going to support–the word support, not create–some 235,000 American jobs. So is that not something?

DIAMOND: Well, sure, there is a interesting partnership that’s emerged over the last 20 years between the United States and China. Chinese jobs are certainly going to be supported by these contracts. Keep in mind that companies like Boeing, companies like General Electric, the high-technology industry, all depend very heavily on cheap labor in China, labor that is unorganized, that does not have basic human rights and basic labor rights. And we have made a kind of deal there with the devil, if you will, in order to keep some minimum number of jobs here afloat. And we haven’t really thought very much about how to turn that relationship around so that it really supports a change in the US economy.

JAY: But what do you think of the basic thesis that it’s an export-led recovery, job recovery?

DIAMOND: I think it’s right that we do have to be thinking about exports, because the global surpluses are now in the hands of countries like China, like India, like Japan, like Brazil. So we’ve got the so-called BRIC economies that hold a good deal of the surplus in the global economy because of the shift in jobs, the shift in trade over the last 20 years. The question is: how do you restore demand in those countries so that they are willing and interested in buying more from the US? And it turns out there’s a very simple idea that could have been at the heart of the discussions with Hu Jintao during his recent visit to the United States, but I heard nothing about this, namely, freeing up the domestic Chinese economy by increasing demand from domestic Chinese workers, raising their wages so that there is a more advanced economy in China that then in turn will rely more heavily on the advanced products available in the United States. And there’s one simple demand the United States could put front and center in its relationship with China, and that’s to allow for free and independent trade unions in China that would give Chinese workers an organized, institutional voice to set higher wages, better working conditions, that would allow them to improve their educational background, diversify their consumption. And that would increase demand in the US for higher product, higher value-added goods in the US economy.

JAY: Well, don’t you think the Chinese could say the same thing to President Obama? How about allowing free unions in the United States? We just saw the number of unionized workers is down. I think it’s overall 11.4, 11.5 percent, as compared to the 1950s when it was 35 percent. I mean, unions seem to be so weakened in the United States that that’s part of the problem here, that you don’t have real consumer demand.

DIAMOND: Well, I think that’s a fair enough point, and I think this ought to be linked to a serious look at labor law reform in the United States that would allow unions to more easily negotiate their first contract. Winning union elections is a problem, and we certainly have to deal with employer–unfair labor practices, for example. But we ought to make it very easy to want to negotiate the right to have a union, to be able to negotiate your first contract. And that’s where the big delays are used and the tactics are used by the employers and their outside law firms to delay, delay, delay.

JAY: It’d be rather hypocritical of President Obama to raise the issue of unions with China when one of the reasons the trade union movement fought so far hard for his election was the Employee Free Choice Act and we haven’t heard a word about the Employee Free Choice Act in quite a long time. I think it’s a year since President Obama’s even mentioned it.

DIAMOND: That’s right, it’s very clear that that was off the table very quickly, and whatever hopes or aspirations organized labor had with respect to the Obama presidency have to be completely rethought now. And certainly the recent shakeup in the internal staff of the White House, which is very important to putting together a more coherent presidency, will likely not result in any shift towards labor’s agenda.

JAY: The other thing we’ve discussed in an earlier interview, but if this is about jobs, this speech, given the federal government is one of the principal owners of one of the biggest, if not biggest auto manufacturer in the world, and given that President Obama said when he campaigned that this was going to be an economic recovery based on going green, you’d think one and one equals two here. But we’re not hearing any hint that this is part of the speech.

DIAMOND: Well, I do think, you know, [snip] the innovation side of this discussion, in addition to the trade side, because I think innovation will be another buzzword that we’ll hear tonight. Yeah, you look at the green issue and you look at the question of alternative vehicles and alternative energy sources, etc., you’re absolutely right: we could have used government ownership stakes in GM and Chrysler and the United Auto Workers, big stake in all three automobile companies now, because their health-care plans for retirees are now heavily invested in the big three. We could have used those big stakes to expand the use of investment for alternative fuels, alternative cars. Instead, if you noticed, in the General Motors IPO recently conducted, a big investor was China and Brazil, because General Motors is shifting its footprint to those Third World countries as opposed to expanding significantly here in the US.

JAY: Well, the other thing, when President Obama speaks about competitiveness and competitiveness on exports, to the corporate mindset one of the biggest pieces of being more competitive is actually lower wages, not higher. It’s not about increasing American demand; it’s actually about in fact lowering it.

DIAMOND: I think it’s twofold. It’s an attempt to basically create, essentially, the Third World-ization of a good chunk of the American workforce. And I think unfortunately this is one of the downsides of massive immigration recently in the last ten years or so. We’ve now imported a huge workforce that was put out of work by NAFTA, the North American Free Trade Agreement, in southern Mexico, and that workforce is now migrating to the US, largely unorganized. They face horrific living conditions and working conditions here in the United States, and they’re not able to unionize very easily. And so that’s a real problem. And I think we’ve kind of lost sight of how to create a coherent society here in the US. And it’s having tremendous challenges for our education system as well, which is also closely related to this, because we have to ask whether we’re training people for the jobs that we say we’re going to create.

JAY: President Obama has all along said, right from the beginning of his presidency, that the jobs recovery program would come mostly through the private sector. Now, two years later, that hasn’t really worked very much, yet there seems to be still no talk of any kind of mass, direct, federally funded jobs program.

DIAMOND: The primary question is whether we think there is a market solution to the crisis. And the crisis itself was caused by an economy that is increasingly deregulated, no longer subject to really stringent securities laws, labor laws, health and safety laws. And we have to really ask whether or not the so-called market approach has really functioned well. I mean, frankly, if we want to look to places like China or Brazil or other parts of the world, you see a heavy hand for the state. Unfortunately, it comes often with authoritarian political culture as well. But in this country we have a democratic political culture, and it isn’t necessarily the case that government intervention or other forms of organizing economic activity couldn’t be tried out.

JAY: So what would you suggest should be–what should be the headline of the speech, State of the Union speech?

DIAMOND: Well, no one asked me to write the headline of the speech, but I’ll tell you that–let me just put one theme on the table as a starting point that we haven’t talked about, which is, I think, important. Namely, it’s military spending and the overall framework of the US role in the world. If we don’t shift the way in which we operate in the world, if we don’t think seriously about major cuts and major restructuring of the defense budget, then the government has no leeway whatsoever. It’s trapped by that dependence, if you will, on this sort of global power dynamic of the US feeling it has to intervene everywhere and anywhere in order to defend its interests. We ought to be rethinking that, number one. Number two, we ought to be thinking more seriously about restructuring the education system, and I think particularly at the high school level and the community college level. We put a lot of emphasis on the idea that everyone ought to go to a four-year college, and we have to ask ourselves whether that really makes a lot of sense. Can’t we find ways, for example–I’ve seen this in Europe, in Italy, for example, the level of technical expertise that high school students learn through a five-year high school program that enables them to leave high school and gain productive employment in an industrial economy. And we’ve lost that connection between our education system and the industrial economy. And I don’t think we innovate our way out of this crisis without changing that relationship between education and the industrial economy.

JAY: Thanks for joining us, Stephen.

DIAMOND: Thank you, Paul.

JAY: And thank you for joining us on The Real News Network.

End of Transcript

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