President of a lost generation


President of a lost generation


Giuseppe Sacco



The founding values ​​of America, according to a recent and solemn formulation, paradoxically issued by a German Chancellor, would be "respect for the law and dignity of each individual, regardless of his or her origin, the color of his or her skin, religion, gender, sexual orientation, or political ideas".

No mention is made of a guarantee against discrimination for age. And yet age is at the origin of the tragedy of a whole generation of Americans, the very generation which has been behind Donald Trump's success, and behind the enormous shock America has just given to the globalization process, and to the global system of which the United States has hitherto been the center and the engine.

 

The total war between the establishment and the new president, which has marked the first six months since the US elections of 2016, pushes – even obliges – the outside observer to pose the question of what has cracked in the social and economic structure on the other side of the Atlantic, so that the Americans could come to such a confrontation. And then the question of what are the chances of success of the reforms that the “party of change” seems to have in mind, and that so much hamper the “party of continuity”.

The surprise and astonishment caused by Donald Trump’s victory were not only a further proof of the fact that the bi-coastal US, the Americans that live along the shores of the two oceans, know next to nothing of what is happening in the immensity of its interior spaces.

 

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The fact that the 2.8 million votes Mrs. Clinton had more than Donald Trump come entirely from California, and the fact that in the rest of the country Trump has – on the contrary – exceeded her rival by 1.8 Millions of votes, doe not only provide a further proof of the wisdom of the American constitutional system, which – with the Electoral College – protects the federal structure of the Union. These two facts also show the geographical and social disarticulation that the global changes of the last third of a century have brought about in the United States, even though America was, and remains, the key country of globalization, and the central pivot of the world system.

This surprise and astonishment also showed that the socio-economic analyses, which are so detailed and meticulous when dealing with minorities and “identity” issues, but are instead somewhat biased and careless when the issues at stake concern social classes and generations that have little weight in the economic system.

What are indeed, in terms of generations (and in terms of social condition), Trump ‘s voters? Those invisible voters that neither the political establishment nor the opinion-makers, and not even the polling institutes, had perceived that they were so numerous? What interests do they have for the political proposals – protectionism, abrogation of Obamacare, public works, fight against illegal immigration, faster military build-up – that Trump has put forward at the very beginning of his campaign, in a language so clear and iconoclastic that it was considered unacceptable and even offensive to a society where “politically correctness” is the rule? To answer these questions a step backwards is necessary, a step back to the fifties of the “American century”.

 

A Russian economist, already in 1951

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It was precisely around the middle of the last century that a Russian-born Harvard economist, Vasily Leontief, had noticed that American exports, compared with goods which, on the domestic market, had to fight against competition from imported products, had a disproportionate content of human labor.

Paradoxical! Because the United States, compared to the rest of the world, had a lot of capital and relatively scarce labor. Leontief’s findings therefore not only seemingly undermined the universally accepted “factors proportion” theory of international trade, but were obviously in contradiction with the most elementary economic logic; and so much more because, already at that time it was not technically impossible to replace these well-paid American workers – i.e. labor –with machinery, i.e. capital.

Leontief’s paradox couldn’t be explained immediately. And this was later possible only by moving from a static analysis of the US position in the international division of manufacturing labor, to a dynamic analysis, based on the so called Product Life Cycle Theory.

American car dream

The American Dream at its best

 

This more modern theory was in harmony with the observation that, since after the First World War, starting with Henry Ford’s Model T, the US industry successively offered to families – which were the setting in which the American Dream used to become reality – a range of durable products: gas cooker, gramophone, radio, fridge, etc. (And is was going to continue up until the late 1970s with washing machine, black and white TV, dishwasher, color TV, and finally – in the new category of computer appliances – with the digital video recorder, the video game console, etc.)

All the Smiths had to buy them, under penalty of losing face for not keeping up with their neighbors,  the Jones. For American society was at that time one of the most egalitarian in the world, with a very large middle class, whose incomes were not only comparable, but growing fairly regularly and at the same pace, opening new mass markets one after the other to consumer durables, which appeared on the market one after the other according to a precise timetable.

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These products, which were important status symbols, used to be sold at affordable prices because they were produced on a large scale, with production starting only when demand ensured that “economies of scale” were at their best. And the demand taken into consideration for this purpose was, of course, American demand, plus the little that could be exported to places such as Europe, which, socially much more unequal than the USA, had a too small middle class to have local production.

These were indeed the exports that Leontief had noticed, and that were at the basis of his “paradox”. Since the products offered were always new, they were intended – if welcomed by consumers –, to be progressively improved, and since their production processes were therefore also to improve, there was a – for the innovating entrepreneur – the need for considerable flexibility in the organization of the producing plant, most of all in the early stages of the endeavor.

The Rise and Fall of the Multinational Corporation

Actually, at the outset, Ford tested his new model’s production line by building vehicles with a  minimum of cheap, prototype tools designed to be scrapped only once they had delivered doors that fitted, body panels and dashboards with the right shape.

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 This assembly line strategy, named “soft tooling”, was very rational, and has until recently been considered a main part of long-held industry norms. Ford, in spite of having started a “revolution” in manufacturing, carefully stuck to some long-held industry norms, and so did his imitators and successors, as the  equipment designed to produce millions of cars is expensive to fix or replace if it doesn’t work.

Most manufacturing companies still stick to it, when trying to make the leap from prototype or niche production to mass producer, and test their production lines with cheap prototype tools, using lower grade equipment that can be modified to address problems. When most of these are solved, the final equipment, which would also cost a fair amount to adapt, repair or replace if it didn’t work out, is put   in place.

Today, however, things have in part changed thanks to “advanced analytical techniques”, a code word for computer simulations that help the investor-innovator not only in advancing straight to production tooling, but in learning to better modify final production tools as well1.

Even in the case of production processes that could have been automatized, the use of human work force remained, in the short term, preferable to heavy investment in machinery. Only once the success of the product had been achieved, the replacement of workers with machines would become profitable, in such a way that successively created factories would always use more capital and less workforce.

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The original, slightly different, French version of this article

 

Only that, at this stage another necessity had probably became a priority for the investor-innovator who had initially launched production, and who had normally established a quasi-monopoly. Namely, the need to protect his business from imitators, especially to protect it from a foreign imitator who could start to produce in his own country before the local market has reached the size for the optimum plant, but whose higher costs could be compensated thanks to protection offered by the local government. The US investor-innovator could however prevent such a risk by establishing a new production plant in the country or countries where the threat of an imitator is the strongest. The product being now “mature”, (i.e. having passed the test of the market) could be manufactured in a much more automated way.

Moreover, to guard against a possible competition by a local manufacturer, the factory could also be given the optimum size to get the least cost. The excess production – i.e. anything that could not be   sold on the spot – would be re-exported to the United States, where success had automatically  expanded the market.

The US Company, that until then was exporting a product with a strong workforce component, would thus become an importer of the same product, manufactured abroad at a lower cost by its more capital-intensive foreign branch.

In doing so, as soon as the second factory was created, the original US-based company has became a “multinational”, whose factories located abroad were are more mechanized and profitable than the mother plant in the United States, which is condemned sooner or later to be closed.

Leontief’s paradox, however, is not affected by that final step, because the place of the former “new product”, hitherto made by American workers, and now technically “mature”, well established on the international market place, and imported from abroad, would be occupied by its successors in the sequence of products without which the Smiths would lose face to the Jones, and vice versa. Middle-class people living in other countries, but in love with the American way of life, would also have inevitably bought these goods, guaranteeing the continuity of exports, and thus of the survival of Leontief’s “paradox”.

 

Vehicule - Accident automobile, une voiture de la marque Ford a Los Angeles dans les annees 1950

 

As long as the risk of a foreign imitator protected by his government existed, this mechanism was repeated without fail, making the United States the eternal exporter of products that were always different but always new, and always manufactured with a large share of human labor. And process continued until when, due to a new technical and legal environment the Multnational corporation itself hit the limits of its life cycle. 

 

The global corporation

The conditions that had favored the Multinationals have indeed no longer been there since about the end of the 20th century. 2 By now, as it has been put by Pascal Lamy 3– the architect of today’s free trade order and institutions which have stripped the Nation States of their protection powers – “production is transnational throughout the supply chains  of goods and services”.

In this new world, corporation operating on the international markets have evolved into economic actors that no longer have the characteristics of the MNCs, and that have more and more frequently called “global”. Their production plants are – of course – scattered in different countries, but they no longer produce the same stuff, and are not oriented at serving the respective local markets. On the contrary, they are specialized on the basis of comparative advantage, and of the international fragmentation of the production process.

 

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Of the traditional organization of the multinational, which made it present with production (or at least assembling) plants in almost all countries of the world, the global corporation has kept only the commercial structure, to serve and assist the final consumer, the crucial and technically more complex operations of the production being shared among various countries, mainly in the sino-japanese world. Production in America has frequently come to an end, and with it the export flows that had led Leontief to formulate his “paradox”.

The impact of a mass displacement of manufacturing activities to Asia, and most notably to China, has obviously been most serious in the Middle West States, that were already suffering from a historic decline of heavy industry based on coal and iron. Most observers have therefore explained Trump’s victories in this part of the country with this critical situation, with the deep frustration of its inhabitants, and with the Republican candidate’s promises not only of a 45% duty on Chinese imports, but of a reversal of environmental legislation as well, and of an extremely unlikely return to coal as a main energy source. Much less attention  has instead been given to the traditionally conservative States of the South, whose vote for Republican candidates in the domestic political struggle is an established fact, and the irreparable consequence of the backwardness and traditional racism of that section of the country. 

This might however be a simplistic explanation, and an easy way for the arrogant and snobbish power and media elite to justify a “doing nothing” attitude when the South ostensibly goes the other way compared to the “bi-coastal” cultural and political trends and fashions. The Southern States are indeed among those whose  manufacturing sector has most suffered of the rise of China as America’s main industrial rival.  

 

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The geographical shift of American manufacturing towards Asia is not however the only, and not even the most important feature of the end of an age in world economy. Even more important, for the impact it is having, and promises to continue having, on the decline of manufacturing jobs, and the skills they require, is the disappearance  of the traditional factory,  and of the social formation it had created, the working class. From an organizational viewpoint, the factory has actually exploded and production has become fragmented along a tortuous logistics system with several chains.

This is well shown by the case of the Apple iPhone, an object which has long been considered the very symbol of the American technical superiority, but which is now “designed and implemented in the United States, is manufactured and assembled by nine companies in six different countries.” 4 Indeed, “though components differ between versions, all contain hundreds of parts, an estimated 90 percent of which are manufactured abroad. Advanced semiconductors have come from Germany and Taiwan, memory from Korea and Japan, display panels and circuitry from Korea and Taiwan, chipsets from Europe and rare metals from Africa and Asia. And all of it is put together in China”.5

ANTI SUICIDE

Anti-suicide net at the Foxconn factory in Shenzhen

International observers had a rare opportunity of getting a glimpse of this new form of manufacturing division on a global scale in the days following the Fukushima tsunami, which created many problems in Shenzhen, mainland China, in the monster factory of the Taiwanese company Foxconn – well known for the very high suicides rate – where the iPhone, and the iPad2 were assembled. This supply crisis has affected, among other things, the new type of iPad2 battery, the accelerometer and the gyroscope, that are components whose manufacturing requires extremely sophisticated techniques for incorporating highly complex micromechanical parts in integrated electronic circuits.

However – as Steve Jobs claimed in February 2011, during a famous gathering of Silicon Valley top personalities that ended up in a bickering between him and President Obama – these techniques are supposed to be so advanced that they cannot be reproduced outside of Japan.6 But this is a circumstance one can doubt of, given that Jobs also had strong fiscal and, to a lesser extent, cost-of-labor reasons to prefer to keep its productions outside the United States. And in any case, one of the most complex components of the iPad2 (and of the smartphone Apple manufactured at that time, the iPhone4), the gyroscope,7 originates from a Franco-Italian company: STMicrolectronics.8

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Pasquale Pistorio, historic President of STMicroelectronics

And this is not unusual as,  for instance, Apple’s supplier of graphics processors was, for the last ten years, the Hertfordshire-based 9 company Imagination Technologies 10, and the same was the case for the Texan Cirrus Logic11 as regards practically all of its audio components, as well as the German Dialog Semiconductors12 for the integrated circuits that manage the varying power requirements in mass market electronic products. And Dialog is a company that gives employment to around 1,200 people and in 2016 has generated 1.2 billion dollars of revenue (of which 890 million dollars from Apple) with a net profit of 258 millions, i.e. 200,000 dollars per capita, half of what Apple – as we will see – manages to make, but still quite considerable.13

The relationship between Apple and Foxconn shows how the world has changed since the age of the Multinationals. Foxconn is the second largest company on the Taiex – the Taiwan Stock Exchange – after Apple itself, of course!14 It has production plants in a dozen countries and reported more than a million workers at the time of the 2009 crisis, including 800,000 in China. It is therefore itself a kind of multinational. But it works almost exclusively on subcontracting, and has never put on the market a new consumer durable, the way the American multinationals of the golden age did. And then, according to indiscretions, his workers only stay in the firm 13 months on the average15, which suggests that they don’t have very rare qualifications.

These two processes, the decline of the multinationals and the emergence of the global corporations, had changed changed the face of US manufacturing by the year 2000, and in the first fifteen years of the century. First the personal computer, then the Internet, and finally mobile telephony had revolutionized the demand for durable goods in all countries of the world, as well as the industrial geography of the planet. And created an endless number of problems for American industrial workers.

Actually, for this section of American working class, the real tragedy had begun much earlier. Since 1979, when China opened its doors to foreign investment, offering the ideal location for operations with a higher demand for human labor, several million American workers – precisely those who fed the “Leontief paradox” – had gradually lost their jobs.

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Today’s American Dreams

An entire generation was struck hard, the generation of those who were children when the Vietnam  War spurred the production of weapons and helicopters, and were still young when Johnson launched the “Great Society”. A tragedy, however, bound to continue as well in the generation of their children, and of which we have not yet seen the end. And this had not gone un-noticed, as Lyndon Johnson (who was already facing a generational rebellion that generated the “flower children” and anti-Vietnam war revolt, and that would prevent him from re-running for President) proposed and passed through Congress new legislation aimed at protecting Americans from the eternal discrimination in hiring of the more then 40 years old. Something unheard of, in America! 16

It was 1967. And it was the time when the age-groups that were bound to be the most “cursed” at the turn of the century (those who would be between 45 and 54years old in 1997) were making – in a climate of great expectations – the decisive choices for their professional future.

 

The age of the job insecurity

Life however was going to disappoint them, and break all that it had promised to this generation, which will become – from the 1980s onwards – a lost generation. The best American youth in the post-war era, around eight million men in the manufacturing sector alone, would find themselves on the dole just before the critical age of fifties. And a few years later they would have to deal with the banks, which would not hesitate to drive out of their houses about ten million families who were no longer able to repay their mortgage.

Alan Greenspan and Ayn Rand at the White House after Greenspan was sworn in as chairman of Gerald Ford’s Council of Economic Advisers, September 1974

 

The large, very large, share of the public opinion, which believes that it can be informed by reading newspapers or watching TV, has not really understood the economic mechanisms and the technical aspects of the financial collapse that the world economy faced in 2008. However, The socio-economic sequence that led to the crisis certainly did not escape those who had felt it on their own flesh, in particular the so-called American middle class. It was first and foremost the increasingly frequent relocations of productive activities to China and other countries with low labor costs, with unemployment for some and the hardening of working conditions for others. And finally the job insecurity for all, that, a few years later, Alain Greenspan, in 1997, will consider a great victory.

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It was indeed in 1997 that he officially declared that it was not necessary to lower the cost of money to encourage investment, because employers were already in a situation that favored new initiatives. And this was due to the psychological condition of “job insecurity” in which the workers were after a good fifteen years of collective dismissals.17

Cynicism aside, he was not wrong, for while manufacturing employment in the United States was close to twenty million at the time (1979) when the Chinese worker came into play as a competitor to the American worker. But starting from that very year the number of Americans employed in  manufacturing began a sharp and rapid decline of about 3 million in the first six years, followed by a partial recovery (one million) with minor ups and downs until 1993, another year that marks a downward trend. In this year, on December 8th, Bill Clinton definitively signed the NAFTA free trade agreement with Canada and Mexico after more than two years of controversy and opposition.

In the previous year, criticism of the treaty had been the main card of an “irregular” presidential candidate, billionaire Henry Ross Perot, whom conservative guru George Will correctly defined a “precursor to Donald Trump.” 18(And Bernie Sanders, one might add, who wrote well in one of his books that he “agreed with his criticism of US trade policy and his opposition to NAFTA.”)19. In 1992, opposed to Bill Clinton and Bush Sr., Perot criticized him for signing a draft treaty and obtained 18.9% of the popular vote, the highest percentage ever achieved by an independent candidate since 1912, and Including 21.5 percent in Wisconsin, a state that will be crucial to Trump’s victory in 2016. In the following elections in 1996, with Bill Clinton running as an incumbent in the White House and NAFTA already as the law, Ross Perot, with a Reform Party he had himself created, still managed to get 8.4% of the popular vote.

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Henry Ross Perot

The domestic political field having thus more or less been cleansed of all criticism and opposition to free trade, and to the ensuing outflow of manufacturing – and labor intensive – economic activities in genera, a new turning point is reached in the fateful year 1997, one could perhaps call “the Greenspan year “. This is indeed the moment in time when which employment in the manufacturing sector begins a catastrophic decline that will reach a bottom in 2009, destroying over 8 million jobs relative to what it was when US capital had gained access to the Chinese labor market.

Eight million just in the manufacturing sector! Not to mention losses in the activities that depended on it; probably of equal momentum in terms of jobs destroyed. A catastrophe, though little noticed by public opinion: because in the 1990s, a section of the middle class was profiting from the rapid financialisation of the US economy and was pushed by it up the social ladder. But this section was that part of the American middle class that in Europe would bear the same name. It certainly wasn’t the section of Americans society that the Europeans would call with a more appropriate name: the working class.

 

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Pascal lamy with President Obama

What Pascal Lamy calls “the ricardo-schumpterian impact of opening markets on the economic and social fabric”20 does not however end there. Because at the same time another competitor appears on the horizon of the generation to which the “great society” had been promised: the Mexican immigrant, often irregular and therefore even weaker in the negotiation with the prospective employer. This is threat that becomes more menacing every day, and very fast, as it can be understood considering that the number of people born south of the Rio Grande in the US population has risen from six hundred thousand (600,000) in 1972 to 2.2 million in 1979. In 1997 they had jumped to nine million (9,000,000), which certainly reinforced Greenspan in his belief that the time of the job insecurity had indeed arrived and finally, to 11.7 million, that is 11% of the total population of Mexico. These are indeed Maxican citizen, not to be confused with U.S. residents identified as being of full or partial Mexican ancestry which, as of July 2015, Mexican Americans added up to 35.8 million, that is made up 11.1% of the United States’ population, and 63.4% of all Hispanics and Latinos of the USA. 

That was the size of Mexican immgration in 2009. But in that very year – with the American economy hard hit by a major crisis that risked bringing down the entire world financial system – their number abruptly peaked and stopped growing. And this will not be a short-lived decline because, outflows compensating inflows, between 2010 and 2014 the total number of Mexico-born people present on US soil only increases by 4,400 units: that is to say nothing. Individuals born in Mexico and having entered the United States in 2013 are, according to the US Census Bureau, be 125,000 in five years. This is a comparable but smaller amount than that of the immigrants, which in the same years, have come from India (128,000) and from China (147,000). Quite interesting figures, if this comparison made sense. Well! It has no real meaning, as the two flows cannot be compared. They are not the same kind of immigrants, the Chinese and especially the Indians being for the most part technicians and/or scientists destined to work in research centers and in universities. The Mexicans traditionally came in droves to look for work at a more humble level, and now they come in very small numbers because they are less and less competitive compared to American nationals, desperate for jobs at any salary.

The wall that Trump promised to build on the southern border of the US would therefore be no longer necessary. If Trump, as a candidate, has made it an important theme in his campaign, it is because the Mexican competition of the past – a threat that is more visible, and therefore more concrete, than the factories relocating in China – has remained deeply rooted in the anguish of the lost generation, the hard core of its electorate.

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In this very bleak picture of the US working class, there also is a very interesting and noteworthy detail: that, while employment in manufacturing is collapsing, production does not decline. On the contrary, in the same years during which this generation is experiencing the failure of all its hopes, the total value of production goes from less than 1,500 to 3,500 billion dollars (at constant 2005 dollars). Even if one wants to assume that a share of the increase in the productivity of those workers who had been lucky enough not to be dismissed could be attributed to progress in technology, 21 one can still clearly see that the psychological factor detected by Greenspan has played in full the role he had foreseen, pushing workers and unions to a very high degree of moderation when wages, working hours and working conditions were being negotiated.

More than job insecurity, actual unemployment has thus become a permanent factor in the life of the US blue collar, and of his family, whose cohesion inevitably suffers from the loss of role and prestige of the former breadwinner.

Soon after, the households’ disproportionate debt drawn on their credit cards will also appear, as well as the loans many of them had obtained by pledging their dwellings; even in the presence of a pre-existing mortgage, because in the United States these mortgages are not considered as debts but as investments. All of which had been amplified by the practice of subprime mortgages, granted to bad payers, in the lender’s perfect awareness that repayment would in a very short run unsustainable for the borrower. Inevitably, this has led to the collapse of real estate values, to a mortgage crisis and to a wave of repossessions, such a giant wave that the banks themselves ended up in trouble and had to be saved – with one exception – with taxpayers’ money.

Mortality Rate for 45-to-54-Year-Olds, by Country

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A tragic development

We can not therefore be surprised if 1997 marks a new, and outright tragic, turning point: the explosion of mortality among white males between 45 and 54 years of age.22Contrary to what happens in all advanced countries, in the demography of the United States there is a tendency for a significant proportion of the male population to have an early mortality rate that is not due to the usual causes that kill Americans, such as diabetes and heart disease, but to suicides, drug or alcohol poisoning, and diseases of the liver. And, according to a research published by the British medical journal, The Lancet23 the phenomenon seems to be worsening, and involving younger generations and women, as between 1999 and 2014 premature mortality increased in white women and those aged 25–30 years. Among 30-year-olds, annual mortality increases were 2·3% for white women, and 0·6% for white men.

Such a magnitude of annual mortality increases in the USA is extremely unusual in high-income countries, and has been seen in modern times only in Russia, under Yeltsin, after the chock privatization ”therapy” and the ensuing total economic collapse.

Alan Greenspan did not deem he should make any comment about this totally anomalous and devastating trend, which – by the way – has in the subsequent years become a permanent feature of US society, and steadily continues worsen to this day. Only when, twenty-five years later, these unlucky people sought to express their dissatisfaction by applauding Donald Trump’s populist rhetoric, Mrs. Clinton gave the impression of having noticed them, and called them “the deplorables”. Victor Hugo would have probably used another expression: les Miserables.

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It is, as the data show, an ongoing hecatomb that affects those born between 1943 and 1972 only white males and – quite interesting detail – does not concern American Hispanics of the same age class.24Because the destiny of the Americans whom had been promised the American Dream, a peaceful middle-class future, was already sealed when their Mexican competitors of the same age appeared in droves on the US labor market. In short, because they are not, psychologically and politically, part of the same generation.

Industrial dislocation – competition from underpaid irregulars – unemployment – indebtedness – becoming homeless – alcoholism – death, the frequency of this sequence might have made it possible for the ruling élites to understand the need for an appropriate policy. In the enthusiasm for globalization, it was nothing. The electoral field thus remained open to the candidate by whom millions of desperate people of the lost generation felt represented. And the American nation sent – as the Economist wrote – “an insurgent to the White House”. An insurgent who, like all his likes, sees more clearly what he wants to destroy than what he wants to put in place. And this applies to Trump as well, who was elected because many destitute white voters saw him as “the champion of those Americans who are poor and not allowed to have their say” 25. In his political behavior of the first half year of his presidency it is indeed difficult to detect a coherent line, especially when seemed to let himself be influenced by the majority of the GOP in Congress to legislation such as the undoing of Obamacare, thus risking of removing all or part of medical assistance to over twenty million people of the social group that has elected him.

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Schermata 2018-12-24 alle 17.40.07Looking at the way President Trump has dealt with the deep divisions inside the Republican Party during their seven-months long struggle – twice abandoned and eventually defeated –  to abolish Obamacare, a  malicious observer could indeed easily come to the conclusion that he might have been influenced by the obvious fact that it was his voters that would have suffered most if the GOP had had it its way. If the readers of the NYT are explained that by opposing transgender people in the military Trump is turning towards his core supporters, why can’t such a malicious observer suggest that, by letting Obamacare survive, Trump has prevented a massive wave of disappointment and discontent among those who had voted for him in the desperate hope of improving their condition, or at least preventing a further fall into desperation?

 

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The limits of protectionism

Apart from the various accusations aimed at bringing him down, President Trump has mainly been criticized for his protectionist views. Still, in this he only expresses the spirit of the time as, according   to the World Trade Organization, “since the great financial crisis, only the G20 countries have introduced 1,200 protectionist measures.” 26 Trump, in reality, with its autarkic and sometimes luddite hints, could rather be considered, at least when he was trying to attract voters, and before he entered White House, a revisionist of the international order, which attacks not only free trade, but also the political system, starting with relations with China, that are at the very center of the economic and political equilibria that make the global power system possible, thanks to the loss of power by the Nation States and the ensuing decline of the rights to civil liberty and social solidarity enshrined in their Constitutions.

Where will this lead? At this initial and controversial phase of the Trump Presidency, an answer is not possible; especially because the frightened reaction, and the undeniable and unanimous effort to bring it down at any cost on the part of the establishment, clearly shows that a return to protectionism is not the only issue at stake, far from it.

In more general terms, confronted as the western economies are with a phenomenon with a thousand faces such as globalization, it is also clear that protectionism – if ever attempted – is likely to prove to be a very weak instrument. In reality, it looks more like a flag than – just like the construction of the now useless wall on the border with Mexico – Trump has been waving in order to give some satisfaction to the millions of unfortunate Americans who contemplate with rage the history of their wasted lives. And not much more.

Buy-American

A hypothetical going back of the United States to protectionism would not, all by itself, be sufficient to restore the complex dynamic equilibrium which was at the origin of the paradoxical situation that – for about half a century – has given so much space to semi-skilled human labor in US exports. As we have already seen, this type of international division of manufacturing labor has been shattered by “the fragmentation of industrial chains into pieces, each elaborated in factories distributed in the world at the best cost”27, as well as by the decline of the “soft tooling” assembly line strategy The prevalent theory about the organization of manufacturing activities is now the one that explains the division of labor that we have observed in the case of the iPhone and Ipad2. Such a theory dominated in the decades straddling the 20th and the 21st centuries, and has made China a great industrial power, mainly at the expenses of the US. Although it must be stressed that these companies with ultra-sophisticated products, whose personnel must provide extremely rare services, are in the end not very many in number.

Suffice it to recall that at the famous diner of February 2011, when Steve Jobs brutally told Barack Obama that Apple products would never again be made in the USA, 28Apple’s profits per head of employee exceeded 400,000 dollars.29 No other company came to that level, even though three were approaching it: Google, Goldman Sachs and Exxon Mobil. 30

The diffusion of a new corporate model, frequently called “global”, but in fact having its center of gravity in a few countries of the Sino-Japanese world, may not be as universal and irreversible as one would expect, or that the “globalist” elite so implacably hostile to “the Donald” would like the world opinion to believe. And it is possible that there is left in the world some room for entrepreneurs with psychological features different from Steve Jobs’ (less prima donna, one might say, or less dominated by an irrepressible need to assert his personality), and for technicians sufficiently normal and numerous so that, with reasonable industrial policies, American manufacturing industry could, at least partially, be relaunched.

 

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A new American Dream ?

 

In the most recent times there has been, and not without reasons, a lot of concern about the impact that artificial intelligence might have on human society. But artificial intelligence also seems to provide the basis for a rebound of the US position in the international division of labor. And it might offer the opportunity (or possibly just a nostalgic whim, an improbable vagary, as in the case of many of those who have brought Donald Trump to the White House) of a reversal, or at least some change, in the global economic and commercial trends that – since the ‘80s – have favored two countries, Germany and China, at the expenses of the old rivals of the 1945-1989 post WWII era, the US and Russia.

 

A new season of US manufacturing?

To this aim, in the complex and somewhat rudderless world of the new century, one could also imagine that a not-irrelevant role might again be played by the same industrial sector than has been at the origin of American hegemony in the field of manufacturing in the central decades of the 20th century: the automotive industry. It has indeed two new “consumer durables” that look somewhat similar to those the Joneses and the Smiths could not do without in the American dream years: the electric car and the autonomous, self-driving car. With a proviso though: that the middle class Joneses and Smiths do not represent any longer as a big share of American consumers as in the time of the “Leontief’s paradox”.

Even though the world’s largest automotive producer, Toyota, is developing a hydrogen fuel cell-powered vehicle, that could defeat all other contestants in the field of New Energy Vehicles (the so-called “NEVs”) and even tough all major groups active not only in the car industry, but in the field of information technology as well, have shown great interest in autonomous vehicles, the next wave in the automobile industry is likely to be electric vehicles whose lithium batteries will have to be recharged every 300 or 400 kilometers, and made in America. Or in China, where market conditions are much more favorable, both in terms of cars per 100,000 inhabitants (around 120, while in the US there are 800), and in terms of public policy. The Chinese authorities have indeed introduced various measures, such as tax exemptions, subsidies for car purchases and a requirement for government departments to buy more new energy cars, and it has been recently announced that by 2024 there will be no more production of cars with internal combustion engine.31

Still, both of them – the electric car and the autonomous, self-driving car – are two rather interrelated technological developments. And two mass market goods with a potentially large social impact, and which will bring about a non-negligible transformation in the organization of the technical and service environment in which they are intended to operate.

Since the very beginning of his presidency, Obama had launched a plan for the mass electrification of American transport, including the automobile; a plan that has not really succeeded, but has left as a legacy some “energy corridors” equipped with recharging points, and linking the richest US regions and the most open to innovation. It had also established a system of grants and bonuses to promote this sector. But it was not enough. Even today, even if the purchase of a VE automatically comes with the installation of a photovoltaic panel or an off-peak accumulator at the buyer’s premises, from any point in the US road network a gasoline pump can be reached in four minutes on average, while reaching an electricity recharge point, takes an average time of thirty-one minutes.

EV-Charging-Map_IL-1024x546

The revolution that seems to be incoming in the field of transportation is thus only partially linked to what Trump wants to do by protecting Made in the USA goods. But it fits in at least partially with another part of his program, the so-called keynesian part, which foresees a great effort at reconstructing the country’s infrastructure, abandoned since Reagan’s time. With a proviso, though: that there is a response from the market to the wave of offer by carmakers. And if this will happen is unclear. On one side there is a great need for new vehicles, as the average age of cars and light trucks on US roads is very high (11.6 years) and run 200,000 miles or more32. On the other only a fraction of that need is likely to become solvable demand, as data released in late May 2017 by the Federal Deposit Insurance Corporation showed a severe drop in car loans outstanding at commercial banks. The total slipped $1.6bn to $440bn from the fourth quarter of 2016 to the first of 2017.33

Unknown-3

Elon Musk

Without a convergence of aims, and a common effort of private business and the federal state, the barrier to a great success of the EV market would be too high for a private company, something that is confirmed by the fact that General Motors, the manufacturer of the most popular electric car, the Chevrolet Bolt EV, equipped with South Korean-made batteries from LGChem, had to give up twice already in the recent past.

Things seem however to have recently changed, as Elon Musk, the CEO of Tesla motors, a rather glamorous firm very much in the focus of the media, has announced that his company will, in the late summer of 2017, put on the market a EV “for all pockets”, the Tesla Model 3, at the price of about $ 35,000, and aimed not only at the United States, but at Europe as well, where – according to the specialized press – there are already around 90,000 recharging points,34 although of many different types and technical specifications. Most of them are standard 22kw connectors, while the 130 kw superchargers that fit the Tesla are only around 850.

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Electric cars in central Rome

In other words, as of 2017, the basic elements for creating a “recharge corridor” equipped with about 850 Tesla-made Superchargers 35 already exists in Europe, along the Lotharingian belt, from Copenhagen to Rome and Valencia, and will probably expand thanks to a joint venture created, at the end of 2016, by BMW, Ford, Daimler Audi and Porsche will succeed in its project to increase the existing 2,800 (both, of 50kw and 150kw type) Css 36connectors.

What seems to be important is that – contradicting Steve Jobs’s pessimism about the possibility of technically very advanced goods being manufactured outside of Japan, Korea or Taiwan, Tesla Motors produces its cars in the United States, in California, and more and more in its Nevada ultramodern factory37, the Gigafactory, where batteries for Tesla are made, and which is presently being enlarged, and will soon have a surface of one million square meters.

Tesla doesn’t therefore seem thinking of leaving America. On the contrary, is has invited substantial japanese investment in the US.

First of all, when Toyota took a $50 million share in Tesla Motors, to jointly develop RAV4 electric vehicles, which sold about 2,500 units Amid culture clashes and recalls”. This cooperation with a competitor came – logically – to an end in 2016. But cooperation with another Japanese giant continued, on a basis of complementarity.

Putting its name on Gigafactory

Will the new Gigafactory mark a reversal of investment flows?

The Nevada giant industrial complex – which could ultimately be the world’s largest building, bypassing (although only in surface, not in volume) the Boeing factory in Everett, Washington – will indeed be shared with Japan’s Panasonic, a partner with which Tesla has begun collaborating more then ten years ago, in the production of high energy density battery packs. More recently, in June 2010, Panasonic invested about $30 million in Tesla Motors and, in January 2016, also revealed that it will invest up to $1.6 billion in the Gigafactory project. Finally, on December 27, 2016, Tesla announced that Panasonic had decided to invest about $256 million in new Buffalo, NY factory manufacturing photovoltaic cells and modules against a long-term engagement by Tesla to buy them. In other words, Elon Musk seems engaged not only in an effort to revolutionize the entire automobile industry, but also in changing a tide that Steve Jobs had pretended was irreversible.

As it always occurs when technological innovations are being taken into consideration, it is next to impossible to make any forecast on the future of the US manufacturing sector. And in such a complex situation it is also quite difficult to draw conclusions from the elements we have so approximatively touched upon.

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But, if the electrification of the automobile sector actually occurred, as it appears to be a distinct possibility, and even more so if it was followed by the generalization of the autonomous, self-driving car; if one were to witness in the next few years a partial withdrawal from the global, Asia-centered hyper-technological enterprise model based on the advantage offered by Chinese cheap labor and by tax heavens; if protectionist measures were to be limited to just preventing the multiplier effect of a neo-keynesian policy from trickling away elsewhere than in America; if all this comes true, it would then be possible to say that the Trump presidency has coincided with the return of America to a measure of industrial “greatness”. The new President would have put into practice part of what he has promised to the American middle class. Otherwise, he will just be the president of a lost generation.

1 Audi launched production of a new plant in Mexico using computer simulations of production tools – and indeed of the entire assembly line and factory – that Audi said it believed to be an industry first. That process allowed the plant to launch production 30 percent faster than usual. The Audi executive involved in the Mexican plant launch, Peter Hochholdinger, is now Tesla’s vice president of production”. Indeed, Tesla “is skipping that preliminary step and ordering permanent, more expensive equipment as it races to launch its Model 3 sedan by a self-imposed volume production deadline of September [2017]”. See, Alexandria Sage, Tesla’s big Model 3 bet rides on risky assembly line strategy http://www.reuters.com/article/us-tesla-assemblyline-idUSKBN17Q0DE
2 There had however been, between1958 and1963 a phase that shook the trend and brought about an acceleration of US investments in Europe, when six markets merged into one, and made the possibility of a local competitors much more realistic and immediate. The immediate consequence was an enormous flow of US investments into the European Community. See, Giuseppe Sacco, Industria e Potere Mondiale, Rome, Franco Angeli, 1980
3 Pascal Lamy, Le Nouveau monde du commerce, in “Commentaire”, N° 151, Fall 2015, p. 491
4 Kevin Brown, Global supply chain’s vulnerability exposed, in “Financial Times”, 22 Mars 2011, https://www.ft.com/content/4b98305a-5497-11e0-979a-00144feab49a
5 Charles Duhigg et Keith Bradsher, How the U.S. Lost Out on iPhone Work, January 21, 2012
6 Christopher Williams, Apple iPad 2 supplies ‘threatened by Japan disaster’, in The Telegraph, 18 Mars 2011
7 Product code: STMicroelectronics AGD1 2022 FP6AQ
8 Katie Marsal, iPhone 4 gyroscope X-rayed, to be added to future iPad, in “Apple Insider”, June 30 2010
9  Tim Bradshow, The blessing and curse of being an Apple supplier, in “Financial Times”, April 7, 2017
10 Madhumita Murgia, Imagination to sell core chip divisions after losing Apple, in “Financial Times”, May 4, 2017 https://www.ft.com/content/41d92d88-30c0-11e7-9555-23ef563ecf9a
11 Tim Bradshaw, The blessing and curse of being an Apple supplier, in “Financial Times”, April 7, 2017
12 Nicolas Richaud, Un nouveau fournisseur d’Apple dégringole en Bourse, in « les Echos », April 11, 2017
13 Nicolas Richaud, ibidem
14 Pierrick Fay, Apple propulse la Bourse de Taïwan au plus haut depuis dix-sept ans, in “Les Echos” May 16, 2017
15 Kathrin Hille, Rahul Jacob and Julie Zhu, China jobs freeze as Apple cuts orders, FT Feb 21,
16 The Age Discrimination in Employment Act (title 29, paragraphs 621 to 634 of the United States Code, regulated labor-firm relations for the all of the US, forbidding hiring discrimination for the over 40s.
17 Louis Uchitelle, Job Insecurity of Workers Is a Big Factor in Fed Policy, in “New York Times”. February 27, 1997
18 George Will, Trump on his way to oblivion, in “Newsmax”, April 16, 2016
19 Bernie Sanders, Outsider in the House, 1997, p. 168.
20 Pascal Lamy, quoted
21 In 2017, at the biannual Conference on artificial intelligence, this point was strongly stressed by Oren Etzioni. See, The AI threat is not the Skynet, it is the End of the Middle Class, https://wired.com/2017/02/AI-threat-isnt-skynet-end-middle-class/
22 Olga Khazan, Middle-Aged White Americans Are Dying of Despair, in “The Atlantic”, Nov 4, 2015 http://www.theatlantic.com/health/archive/2015/11/boomers-deaths-pnas/413971/
23 Mary T Bassett, Gretchen Van Wye, Mary Huynh, Denise Paone, Hillary V Kunins, White individuals’ risk of premature mortality in context, in “The Lancet,” Vol 389, num. 10077, 8–14 April 2017, p. 1393
24 « Premature mortality decreased substantially across all age groups in Hispanic individuals (up to 3·2% per year), black individuals (up to 3·9% per year), and Asians and Pacific Islanders (up to 2·6% per year), mainly because of declines in HIV, cancer, and heart disease deaths, resulting in an estimated 112 000 fewer deaths in Hispanic individuals, 311 000 fewer deaths in black individuals, and 34 000 fewer deaths in Asians and Pacific Islanders aged 25–64 years. During 2011–14, American Indians and Alaska Natives had the highest premature mortality, followed by black individuals”, in “The Lancet”, quoted
25 Michael Gerson, Trump has picked a deeply disturbing hero, in “Washington Post”, March17, 2017.
26 Stefan Theil, The Trade Wars, Handelsblatt, March 10, 2017; https://global.handelsblatt.com/our-magazine/the-trade-wars-723237
27 Eric Le Boucher, Que vous l’aimiez ou pas, la mondialisation continuera, in Commentaire, N°156, hiver 2016-17, p. 888.
28 Steve Jobs to Obama: Those jobs aren’t coming back, in “Catholic Online”, January 23, 2012
29 These figures obviously only take into account only Apple’s 43,000 employees in the US plus the 20.000 in other advanced countries, but doesn’t consider the 700,000 employed by contractors such as Foxconn, who work in an extremely brutal environment.
30 Dylan Love, Apple makes more money per employee than Exxon and Google, in “Business Insider”, January 23, 2012
31 Conal Urquhart, Fuel-powered cars ‘will not be manufactured after 2024’ says report, in “China Daily” May 16, 2017
32 Jim Gorzelany, Cars And Trucks That Run For 200,000 Miles Or More, Forbes, March 30, 2017
33 This suggests “that banks — wary of repeating the mistakes of the subprime mortgage crisis — have been spooked by rising delinquencies and the threat of litigation”, see Ben McLannahan, US banks pull back from $1.2tn car loans market: Overstretched consumers raise fears of bubble in echo of subprime mortgage crisis in “Financial Times”, May 29th, 2017.
34 See, Intese tra i big per i punti di ricarica, in Quattroruote”, Milan, January 2017
35 Whose power is 120kw, and makes possible to re-charge in 30 minutes a car for 270 more kilometers
36 Combo charging systems.
37 John Parker, Powering the Future: Tesla’s Strategic Partnership with Panasonic, in “Market Realist”, Dec 30, 2016 http://marketrealist.com/2016/12/investors-react-panasonics-investment-tesla/

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