Free Trade for Wall Street
It’s time to get real about “free trade.” There are no advocates of free trade in high political office or on the nation’s editorial boards. The so-called “free traders” just want to free up trade in the goods and services produced by less-educated (non-college educated) workers.
By opening up large segments of the economy to competition with goods and services produced by low-paid workers in the developing world, they can put downward pressure on the wages of the 70 percent of the workforce that lacks college degrees. For those who work in the protected sectors, this upward redistribution is just great. Cheap manufactured goods, restaurant meals, gardeners and nannies mean that the paychecks of doctors, lawyers and investment bankers go much further.
High-paid workers have been the big gainers from trade, not shareholders.
The profit share of corporate income has increased little over the last quarter century. Competition has apparently forced prices to fall more or less in step with the wages of less-educated workers. The winners from globalization have therefore been the workers who manage to keep themselves largely protected from competition with their counterparts in the developing world.
So, if we want to help those at the middle and bottom who have been hurt by globalization, then we will have to take it out of the hides of the most highly educated workers, doctors, lawyers, and investment bankers.
For now, let’s talk about investment bankers and other highly paid workers in the financial sector. After all, with the subprime meltdown, most of the leading lights of Wall Street are just a step ahead of the law. And we all know that kicking people when they are down it is the most basic principle of American politics.
So, we have to think about the financial industry in exactly the same way that our trade negotiators thought about manufacturing when they negotiated NAFTA. NAFTA did not simply reduce tariff barriers to imports of Mexican manufactured goods. In fact, tariffs on imports of Mexican manufactured goods were already low prior to NAFTA. NAFTA was explicitly designed to reshape the institutional structure in both Mexico and the United States to facilitate the flow of manufactured goods from Mexico to the United States. The Bush I-Clinton trade negotiators sat down with representatives of major corporations and asked them what were the obstacles that prevented them from setting up manufacturing operations in Mexico. These obstacles were reduced or eliminated by NAFTA.
In the same vein, we should sit down with state and local treasurers and ask them what prevents them from taking advantage of the lower bond underwriting commissions that could be charged by investment banks in Mumbai or Hong Kong. This could save taxpayers nationwide billions of dollars each year in bond underwriting fees. Similarly, we can ask start-up companies in the Silicon Valley why they don’t seek to use Indian or Chinese investment banks for their initial public offerings, saving billions on fees and removing an important obstacle to gaining access to capital on world financial markets. We should also ask public and private pension fund trustees why they don’t seek out developing country banks to manage their assets, potentially reducing the money paid each year in commissions by tens of billions of dollars.
Free trade policies that removed barriers to financial firms in the developing world would both hasten growth by increasing efficiency and also lead to a more equal distribution of income. Of course, all the editorial writers and columnists who hold free trade to be most sacred would have to support this agenda, otherwise they would be a bunch of knuckle-scraping Neanderthals. Put simply, we need a new free trade agenda that will do for Wall Street exactly what the current free trade agenda has done for Detroit.
[For those who actually think that U.S. professionals don't need protection from international competition, here's a partial of the barriers.]
December 4, 2007 6:37 PM | Reply | Permalink
This is one of the least substantiated and overwhelmingly dumb posts I have ever read on this website. Keeping in the spirit of the original post, I will refrain from documenting its errors by citing specific facts that would refute it, e.g., the copious examples of offshore servicer providers to US clients in medicine, law, and banking, that one can read about in the general press or the thousands of hits that will arise upon a simple google search for "outsourcing __". I suspect any one working in the sectors you mention has plenty of evidence contrary to your assertions about those sectors without my adding more. But please by all means go ahead and ask all those questions of state and local treasurers, etc. - and do post the answers you get. Maybe you should send your post to your doctor, lawyer, pension fund manager, etc., just so they know how you really feel about their status in our society.
December 5, 2007 11:06 AM | Reply | Permalink
There are Chinese and Indian investment banks?
What do manufacturers who sat down with the NAFTA negotiators have to do with Wall Street or Investment Bankers?
Is this just a populist screed?
To answer my own questions, no, there are no notable investment banks outside of the US and maybe Europe. Why? Because they do not how to do it. Sound too simple, and it is that simple.
As for manufacturers and investment bankers, the idea that they are even civil, let alone collaborative, is naive. Not that Wall Street disliked NAFTA, but they were not at that table, and if the manufacturer's had anything to say about it, they were not even invited.
And, yes, absent of any reasonable facts or examples, this is just a populist screed.
/c
In the blogosphere every one is an expert, so no one is an expert.
December 5, 2007 1:57 PM | Reply | Permalink
I just love the Mexican avocado theory of international trade --the folks who think that we have free trade in agriculture because we can buy avocados grown in Mexico in the supermarket. The fact that we have some doctors, lawyers, investment bankers in the U.S. who were born in foreign countries does not prove that we don't have barriers to their entry. If we didn't have barriers to the entry of professionals from the developing world, then U.S. born professionals in the United States would be as hard to find as U.S. made toys.
I am waiting for the "free traders" to go after the barriers that prevent professionals in the developing world from working in the U.S. They always go into hiding when I raise the issue. Free trade is for the goods and services produced by people without college degrees. It was never meant to apply to the goods and services produced by economists and editorial writers and their siblings and children.
btw, there is a long list of professional and licensing barriers that keep professionals from the developing world from working in the United States. It is remarkable that this fact is not universally known.
December 5, 2007 5:57 PM | Reply | Permalink
Their are incredibly huge investment banks in China. Just because a logo that originated in the US or Europe is on the side of the building doesn't mean that the workers aren't chinese, nor that the majority of investors aren't chinese. The opposite is the case. The Chinese banks are getting more aggressive with each year, with levered buyouts and real-estate development the current rage. They are currently at about 1987 when it comes to ibanking. 5 years ago they were in the 60's and in ten more they will have caught up with us.
(PS, if any of these banks mentioned are interested in an analyst specializing in valuation with executive experience, I'll take 500,000 RMB/year and a company car, please.)
December 6, 2007 7:00 AM | Reply | Permalink
Really? You're waiting to lose your job? Cuz frankly your analysis isn't so insightful that I can see your employer choosing you over two equally qualified foreign profs asking for half the salary. :)
The reason foreign professionals can't pass the professional and licensing barriers is because of ENGLISH SKILLS. And thats fine, because I don't want a doctor pantomiming to me that I have cancer. But now that more and more foreign schools teach English as a required course, I think the last real substantial barrier to entry is fading fast.
December 6, 2007 7:06 AM | Reply | Permalink
There's no need for the "free traders to go after the barriers that prevent professionals in the developing world from working in the U.S." They're already doing it by shipping that work outside of the U.S. I'm a college-educated professional in the high-tech field who has had one career evaporate due to offshoring and has a increasingly high chance of having my current career suffer the same fate. Doctors, lawyers, architects, and accountants (to name only a few) are already being offshored. When you get an X-ray or CT, especially in a non-emergency situation, your films have a good chance of being interpreted by an Indian doctor who then dictates the report that winds up in your medical file.
The criterion isn't just "Do you speak English?" The question is "Can you speak English well enough to 'get by' with clients and how the bleep much cheaper are you?"
December 6, 2007 10:06 AM | Reply | Permalink
I think 'free trade' is a euphemism for 'wage
slave'. Work keeps the chattel busy so they
won't revolt. People start having enough free
time, first thing you know they want to start
running things, asking those little questions
all the time, and then next thing you know
they're setting up the guillotine in front
of your house and dancing around with torches
and pitchforks. It's just ugly. So, instead,
you put the cheese juuuust out of reach so they'll run really really fast on that treadmill
and you hook your house lights up to that.
Remember, you're either a producer, or a consumer...it's the economy, stupid...oh,
wait, that was the last guy...
9.1 trillion, and counting....just keep
tapping that 'zero' key...
December 7, 2007 12:37 AM | Reply | Permalink
$9.1 trillion debt, you mean? Try this idea: there is no US debt. The $9.1 figure uses accepted accounting terms based on borrowing (mostly T-bills). But the national economic footprint does not conform to the very accounting rules that say we have a $9.1 trillion debt. For example, foreign asset ownership has not changes in 30 years, the same period the "debt" was acquired. Following the same accounting schema by which the debt is calculated, this could not be so.
So what's the difference between French, Italian and Japanese debt and US debt? Three things: incountry stability, global security, and know-how. Even with low interest rates, foreign companies continue to purchase US assets because they are safe. The US' military spend is equal to the total military spend of the next 10 powers, all of which provides security to global shipping. And finally, when we count trade deficits, we do not count soft goods like consulting (e.g. Banking services alone represent $50BN/year).
How do we value stability, security and know-how? We don't according to the accounting methods that identify $9.1 trillion in debt. But these values exist, or else foreign investment would dry up, and foreign assets would be nonexistent.
It's all in how you valuate.
/c
In the blogosphere every one is an expert, so no one is an expert.
December 11, 2007 4:46 AM | Reply | Permalink
I wasn't referring to capital, but to expertise; which is what the post was about. Dr. Baker's assertion that companies can simply employ Chinese and Indian investment banks for their IPO and M&A services is silly. The financial expertise required for structuring the deals, and the inroads with the backers is still an American phenomenon; albeit with England, Scotland and France riding up from behind, and to a lesser extent Japan. I think you’ll agree that our marketplace is already awash with Far Eastern capital. Where we may differ, and where I differ strongly from Dr. Baker, is that the intellectual capital is still dominated by the Western powers with Wall Street at the head of the pack.
Just to check my sanity, and provide some useful measures, I pulled the League Tables for the last quarter from mergermarket.com and I believe it confirms my above point: The top 20 M&A’s for 3Q07 are dominated by western investment banks, most of which are American. Just for sh*ts and giggles, I took a quick look at the majority shareholder of the top ten, and again, even the majority shareholders are western investment banks: on average 60% of the investment banks are owned by competing investment banks, with 9% ownership coming from Mutual Funds, most of which administered by western fund managers. That’s a total of 69% ownership by western banks.
Again, western banks are awash in Far and Middle-Eastern money, no doubt. But the technical skill and financial expertise is still found in the west. Just look at the CEO’s: John Mack, Lloyd Blankfein, Robert Rubin, William Harrison, Stanley O’Neill (well, until recently, at any rate) etc.
So where are Dr. Baker’s Chinese and Indian competitors?
/c
In the blogosphere every one is an expert, so no one is an expert.
December 7, 2007 12:24 PM | Reply | Permalink