THE CAPITALIST

THE CAPITALIST

Rescuing

the Rustbelt

It is fascinating watching politicians say how they are going to rescue the "rust belt" regions where jobs are disappearing and companies are either shutting down or moving elsewhere.

The North American Free Trade Agreement (NAFTA) is being blamed for the jobs going elsewhere. Barack Obama blames the Clinton administration for NAFTA, and that includes Hillary Clinton.

Senator Obama says that he is for free trade, provided it is "fair trade." That is election year rhetoric at its cleverest.

Since "fair" is one of those words that can mean virtually anything to anybody, what this amounts to is that politicians can pile on whatever restrictions they want, in the name of fairness, and still claim to be for "free trade." Clever.

We will all have to pay a cost for political restrictions and political cleverness, since there is no free lunch. In fact, free lunches are a big part of the reason for once-prosperous regions declining into rust belts.

When the American automobile industry was the world's leader in its field, many people seemed to think that labor unions could transfer a bigger chunk of that prosperity to its members without causing economic repercussions.

Toyota, Honda, and others who took away more and more of the Big Three automakers' market share, leading to huge job losses in Detroit, proved once again the old trite saying that there is no free lunch.

Like the United Automobile Workers union in its heyday, unions in the steel industry and other industries piled on costs, not only in wage rates having little relationship to supply and demand, but in all sorts of red tape work rules that added costs.

State and local governments in what later became the rust belt also thought that they too could treat the industries under their jurisdiction as prey rather than assets, and siphon off more of the wealth created by those industries into state and local treasuries with ever higher taxes - again, without considering repercussions.

In the short run, you can get away with all sorts of things. But, in the long run, the chickens come home to roost. The rust belt is where those rising costs have come home to roost.

While American auto makers are laying off workers by the thousands, Japanese auto makers like Toyota and Honda are hiring thousands of American workers. But they are not hiring them in the rust belts.

They are avoiding the rust belts, just as domestic businesses are avoiding the high costs that have been piled on over the years by both unions and governments in the rust belt regions.

In short, the rust belts have been killing the goose that lays the golden eggs. That is a viable political strategy, so long as the goose doesn't die before the next election and politicians can avoid leaving their fingerprints on the weapon.

But the people who lose their jobs, and who live in communities that decline, need to look beyond the political rhetoric to the grim reality that there is no free lunch.

Many workers in the new plants being built by Toyota and others apparently already understand that. They have repeatedly voted against being represented by labor unions. They want to keep their jobs.

Where does NAFTA come into the picture?

International trade is just one of the many ways in which the competition of lower cost producers can cause higher cost producers to lose customers and jobs. Technological improvements or better management practices by domestic competitors can have the same result.

Jobs are always disappearing. The big question is why they are not being replaced by new jobs. Rust belt policies that drove out old jobs also keep out new jobs.

NAFTA makes it easier for politicians to blame the problem on foreigners. In fact, foreigners make ideal scapegoats for politicians. After all, people in Japan or India can't vote in American elections.

Americans who can vote would do well to start spending more time thinking about economic realities, instead of being swept away by political rhetoric.

Thomas Sowell is a senior fellow at the Hoover Institute and author of Basic Economics: A Citizen's Guide to the Economy.