As I've mentioned the odd time before there's probably good reason why Robert Reich isn't a professor of economics. His grasp of the subject appears to be, to put it politely, less than assured. He's currently complaining about how international trade these days just doesn't benefit the American middle class in perhaps the manner it once did. Not that that is an unusual complaint these days of course. But he then uses the example of
Here's Reich's complaint:
Big American corporations no longer make many products in the United States for export abroad. Most of what they sell abroad they make abroad.
The biggest things they “export” are ideas, designs, franchises, brands, engineering solutions, instructions, and software, coming from a relatively small group of managers, designers, and researchers in the U.S.
The Apple iPhone is assembled in China from components made in Japan, Singapore, and a half-dozen other locales. The only things coming from the U.S. are designs and instructions from a handful of engineers and managers in California.
That is indeed exactly the way that it is supposed to work. As Paul Krugman has remarked average wages in a country are determined by the average productivity in that country. Thus, to have higher average wages you want to have higher average productivity. That means fewer lower productivity jobs and more higher productivity ones the richer the country becomes. So, what are those high productivity jobs within the Apple production process? That's the engineering and the managing, no? It's certainly not the assembly of the products is it? Not when that can be done by people in those vast Shenzen sheds at $2 an hour. Thus the way we would like to see America get richer is for those low productivity jobs to be done elsewhere and the high productivity ones in the US.
To make the same point another way. Reich argues for the US minimum wage to be raised to $15 an hour. He is thus insisting that there should be no below $15 an hour jobs in the US at all. I disagree with him but that is indeed what he says. And yet electronics assembly currently has a US median wage of $14.38 an hour. Reich wants fewer, even no, jobs like this in America. So, Apple is doing exactly what Reich demands, that pattern of international trade is performing the precise task that Reich desires. Moving the low productivity jobs out of the US and leaving only the high productivity ones here to be done by those highly paid US workers.
Yet when that happens, when trade is doing exactly what he thinks should be happening, Reich then complains that there's no low productivity assembly jobs in the US. What?
To extend this: imagine that all workers in the US only did the design, instructions and management of production elsewhere in the world. Johnny Foreigner can do the actual factory work, Americans all the high productivity, high pay, stuff. Do we think that America would be richer than it is today or not? Obviously, richer. So why complain about this happening in part rather than in full?
It is possible to make sensible criticisms of the current round of trade treaties. I for one think that much too much attention is being paid to intellectual property (the "TRIPS" stuff) and we just shouldn't be including that in trade negotiations at all. But to complain that Apple is only doing the good and well paid jobs in the US and using foreigners to do all the cheap stuff, as Reich does, is to miss that this is the very point of international trade in the first place. The very thing he's complaining of is the very thing that makes us richer.
