Finance and Free Trade
BROCKWAY, GEORGE P.
The Dismal Science FINANCE AND FREE TRADE BY GEORGE P. BROCKWAY When the Republicans lost control of the Senate, Wall Street was loud in its prophecies of doom and gloom to follow...
...For Europe, Japan and Canada to get as prosperous as we are, they'd have to lower their interest rates (already lower than the U.S...
...Take General Motors—and I'm not even going to talk about General Motors Acceptance Corporation...
...There is another aspect of Baker's scheme that I haven't mentioned...
...GM's foreign operations take American jobs as surely as does Suzuki of Japan...
...GM will make money by helping foreign companies compete with American industry...
...These are not industrial operations but financial operations...
...Bethlehem and the rest, with the exception of some smaller specialty companies, are closing plants apace...
...This will happen over three years and is said to be due to foreign competition...
...In the report I'm using, the United States and Canada are lumped together...
...of Korea...
...Take away industry and agriculture, and the rest of us soon won't have much to do...
...International banking has already largely escaped from national regulation...
...The lower interest rate would reduce the drag of the deficit, and the foreign buyers would continue to help finance it...
...And there's still more...
...What has that got to do with finance...
...He's got Europe and Japan and Canada to agree (more or less) to get as "prosperous" as we are...
...Being a principal performer in the most doctrinaire of administrations, Baker is not likely to be alarmed at the prospect of unregulated banks and brokers roaming the world...
...Their industries and agriculture are being ravaged by Third World competition, and their banks have their share of nonperforming Third World and Communist World loans...
...They can't do much about the prosperity, or lack thereof, of Europe and Japan, but they could do a great deal about the 30 or 40 million of our fellow citizens who live in poverty...
...I mention them only because they personify the pure freetrade doctrine...
...Two days after last November's election (I wonder why they waited until then...
...And the banks have a solution to their problem: import more from the countries that have borrowed their money— our money...
...Purists think we should abandon our steel industry and rely on imports from Brazil, Korea or wherever...
...GM announced the closing of 11 plants employing more than 29,000 people...
...United States Steel, which only yesterday was the archetype of modern industry, has now been thrust below the salt by its conglomerate progeny, going by the arrogantly punk name of USX...
...Then he expects them to buy lots of raw materials from Third World countries, which would thus be able to pay off what they owe our banks...
...He has his eye on the "invisible imports" that underwrote the British Empire in the 19th century...
...Wait, as the TV commercials say, there's more...
...Prosperity begins at home...
...Yet if we don't import more from the Third World (not to mention the Communist World) the banks won't get our money back...
...They're not actually going to do much about it for almost a year...
...They will then run to their American parents to help them with real American dollars, whereupon their parents will threaten to go bankrupt and go running to Uncle Sam, who no doubt will bail them out...
...There are added bonuses in Baker's scheme...
...Most of these loans went to finance factories and farms competing with ours, quite effectively...
...On the other hand, if we do import more, our industries—including our basic industries—will be destroyed, and our fellow citizens—including those with know-how essential for national survival—will wind up in soup kitchens...
...They even understand that we can't compete because foreign standards of living are so much lower than ours...
...There are those—I have met and talked with some of them—who are ready to let steel go and are simultaneously eager to devote upwards of 10 per cent of our gross domestic product to defense, since they contemplate the possibility of war, perhaps only with Nicaragua, perhaps also with Cuba and even with the Soviet Union...
...It's not simply that the act he has followed doesn't rate as a lough one to beat...
...Not that there aren't plenty of doctrinaire free-traders around...
...It also owns 50percentof Daewoo Motor Ltd...
...But it's a good bet that GM imports far more from its foreign plants than it exports to them, and you'll note that none of the foreign plants is among the 11 to be closed, and none of the foreign employees is among the 29,000 due to be dropped...
...and if they follow Baker and solve our problem, they'll only make theirs worse...
...From the pointofviewof theUnited States, it is doubtful that the foreign plants have yielded even invisible income, because their earnings have almost certainly been reinvested abroad and thus have escaped U.S...
...Their smarts are exactly like ours, and have got them into exactly the same sort of mess...
...Secretary Baker and his boss have their priorities backward...
...He wants Europe and Japan to lift whatever restrictions they have on the operations of American financial institutions —banks, insurance companies, brokers, and so on...
...that's why the banks want to beef up this part of their business...
...Before the closings, GM had 223 plants in 22 countries employing 762,500 people...
...Our exports would soar, we'd pay off our debts (the greatest in the world), and everybody would be happy...
...A larger number of banks have gone bankrupt in the years of Reagan prosperity than in any comparable period since the Great Depression...
...Practically nothing is the correct answer...
...but after that Baker expects them to buy steel and computer chips and wheat from us instead of from the Third World (or from themselves...
...I mentioned Suzuki, of course, because GM owns a piece of it, just as it owns 38.6 per cent of Isuzu Motors (did you wonder how Isuzu was able, almost over night, to find dealers for its trucks all over the United States...
...But it is due to finance...
...This has not excited their enthusiasm...
...The trouble is, there are too many of them...
...Now I ask you, what do GM's foreign plants do for American industry...
...It would also make it easier for our prime borrower, the Treasury, to lower the rates it pays and still attract European and Japanese and Arabian buyers for the bonds and notes it issues...
...Secretary of the Treasury James A. Baker thinks he has the best solution...
...LTV, which was allowed to merge with Republic Steel on the theory that big is beautiful, is in Chapter 11...
...BankAmerica has recently had a shake-up and has had to fight hard to avoid being taken over...
...Well, banks are in trouble, too...
...The Democrats should not allow themselves to be blinded by it...
...They recognize that American steel can't compete with foreign steel, that American textiles can't compete, and that American agriculture can no longer compete...
...Wall Street was an appropriate locale for the wailing, because the issue is not free trade versus protectionism, it is finance against industry (and everyone else...
...If they're lucky, they'll get jobs ladling out the soup...
...Anyone who retreats from that doctrine in the interest of national defense must logically be willing at least to consider the possibility that other retreats would also be reasonable—in order, say, to defend American industry and agriculture...
...But they put their trust in the infallibility of the market, accept our industrial decline as inevitable, and reflect in comfort that the cost of living is thereby held down for the rest of us...
...taxes...
...That would allow the lowering of ours, making it easier for those of us who want to borrow...
...To see how finance and industry are opposed, let's first look at the steel industry...
...They may import some American parts or assemblies, and they no doubt rebuild a few Cadillacs to meet the esoteric needs of Arabian sheiks...
...And steelmakers have a solution to their problem: restrict or prevent foreign imports...
...You can see why the press thinks Baker is the smartest Secretary of the Treasury we've had in a while...
...He seems not to have noticed (a) what has happened to the British Empire in the 20th century, and (b) what has happened since our banks triumphantly recycled opec's 1970s winnings into nonperforming Third World loans...
...Everyone knows it is in trouble...
...In the modern world, free trade is a smokescreen for the benefit of finance...
...But it does not take much imagination to foresee that as the overseas branches of American banks compete to press Eurodollars on reluctant borrowers, they will sooner or later find themselves with fat portfolios of nonperforming loans...
...All this has happened in the midst of the greatest military expansion in history, a tremendous boom in steelgirdered office buildings and apartments, and record automobile sales...
...Invisible imports cost visible jobs...
...These knee-jerk free-traders are above wondering how, in such a war, we could get Brazilian steel safely through hostile waters or protect Korean mills from bombing...
...Their dilemma is exactly like ours...
...The Dismal Science FINANCE AND FREE TRADE BY GEORGE P. BROCKWAY When the Republicans lost control of the Senate, Wall Street was loud in its prophecies of doom and gloom to follow from Democratic attempts to protect American industry and agriculture...
...There is more to finance than financial institutions...
...So we face a first-class dilemma...
...Our friendly allies, however, didn't get where they are without having some smarts of their own...
...Obviously we can't both import more and import less at the same time...
...More to our present point, many, if not the majority, of our major banks are exposed to nonperforming foreign loans greater than their total assets...
...even so, there are, in the rest of the world, 74 plants employing 162,500 people...
Vol. 70 • February 1987 • No. 2
