The fiasco surrounding Amazon’s recent escape from New York reflects a broader, potentially devastating trend. By driving the Seattle-based behemoth out of the Big Apple, New York’s increasingly militant progressives have created a political paradigm that could resonate in cities across the country.
Few places on earth are better suited for middle-class prosperity than Australia. From early in its history, when it was a refuge for British convicts, the vast, resource-rich country has provided an ideal environment for upward mobility, from the pioneering ranches of the nineteenth century to the middle-class suburbs of the late twentieth. Journalist Donald Horne described Australia in 1964 as “a lucky country run mainly by second-rate people who share its luck.”
Over the last decade, though, Australia’s luck has changed, as the country develops many of the pathologies of crowded, socially divided societies like the United Kingdom or the United States. Read more
The French nobility, observed Tocqueville in The Ancien Regime and The Revolution, supported many of the writers whose essays and observations ended up threatening “their own rights and even their existence.” Today we see much the same farce repeated, as the world’s richest people line up behind causes that, in the end, could relieve them of their fortunes, if not their heads. In this sense, they could end up serving, in Lenin’s words, as “useful idiots” in their own destruction.
The current frenzy of new IPOs — Uber, Lyft, Slack, Postmates, Pinterest and Airbnb — seems destined to reinforce progressive notions that California represents the future not just for the state, but the nation. It will certainly reinforce California’s fiscal dependency on tech-dominated elites — half of the state’s income taxes come from people making over $500,000 a year — and provide a huge potential multi-billion dollar windfall for the state treasury.
Whatever one thinks of Donald Trump’s proposal to build a “beautiful wall,” it is unlikely to resolve the crisis sending ever more people—largely from Central America—to America’s borders. The problems that drive large numbers to leave their homes and trust their families to criminal gangs will not be solved by bigger fences but better thinking. Fundamentally, the United States should regard Mexico and Central America not as adversaries but as economic partners in a world increasingly defined by competition between the U.S. and an ever-more aggressive China determined to establish global hegemony—even in our hemisphere. In this context, a strong policy of investment and aid to our southern neighbors makes both economic and political sense.
The American relationship with Mexico and Central America is implicitly complementary. The U.S. and Mexico not only exchange products and services; they also produce them jointly. American manufacturing or value-added inputs represent 40 percent of every dollar Mexico exports to the United States. Chinese exports to the U.S. represent only one-tenth as much.
Mexico complements the U.S. in ways that promote regional competitiveness. Capital abundance and high-skilled labor in the U.S. are complemented by low-skilled labor abundance and capital scarcity in Mexico, factors that are, if anything, even more evident in Central America. The region’s weak human-capital accumulation has hobbled its integration with advanced trading partners like the United States. In Central America, more than half of youths between 15 and 24 are out of the educational system, and most work at poorly paid jobs. Only 38 percent of Central American youths aged 27 to 29 hold a high school degree, compared with 61 percent in the rest of Latin America.
The 1994 passage of NAFTA led to a period of unprecedented growth and optimism. Mexico enjoyed macroeconomic stability, during which inflation, exchange-rate volatility, and short-term interest rates converged with those of the U.S. Economic cycles in industrial production also converged in both countries. This emergence was derailed, first by China’s 2001 entry into the World Trade Organization and then by the Great Recession.
The recession is now a bad memory, but China’s influence has only grown. By 2003, China had surpassed Mexico as the second-leading importer to the United States, behind Canada. By granting WTO membership and most-favored nation status to China, the U.S. opened the door for an expansion of Chinese-manufactured exports, to the detriment of traditional sources such as Mexico, which lost around 650,000 manufacturing jobs from 1995 to 2016. A big overlap exists in the kinds of products—clothing, automotive, and consumer electronics—in which both Mexico and China excelled; the two countries’ export mixes to the U.S. became similar just when China increased its manufacturing export capacity. Mexico specialized in industries and activities in which, in some cases, China would eventually develop a comparative advantage. In 2006, Mexico’s maquiladoras—mostly lower-tech factories requiring semi-skilled labor to do assembly and finishing work—generated more than $25 billion in foreign exchange and accounted for 44 percent of total Mexican manufacturing exports; 94 percent of maquiladora exports went to the U.S. As China’s access to U.S. markets grew, the maquiladora industry lost jobs, largely to China’s benefit.
The increase in Chinese exports to the U.S. hurt Mexican labor markets, which faced a negative demand shock after 2001. These shocks may have been disproportionately large in the case of manufacturing establishments that use unskilled labor, especially for maquiladoras in the border region. These factories’ production structures resembled those of Chinese firms, and they were thus more vulnerable to China’s enhanced presence in the U.S. import market.
The displacement of Mexican manufacturing products in the U.S. market led to a decrease in Mexican wages, and the negative effects spilled over to wages paid in non-manufacturing industries. The decline of manufacturing in Mexico has had a devastating impact on the country. As China’s dominance as a U.S. trading partner has grown, Mexico has seen a rapid rise of crime and corruption. The once-bright hope seen for the country, largely as a result of close cooperation with the United States, has faded, and led, most recently, to the election of its most aggressively left-wing president in 50 years—Andrés Manuel López Obrador.
The results south of Mexico were even worse. In the pre-China era, Mexican manufacturers would move some their more labor-intensive operations to Central America, where costs were lower. But as the Mexican economy has failed to expand, such movement has decreased. Instead of new production, many of these countries simply import manufactured goods from China, rather than building industries for “liftoff” while they export commodities to Beijing. Chinese merchandise imports by Central American countries (Costa Rica, Dominican Republic, El Salvador, Guatemala, and Honduras) rose from $4.7 billion in 2011 to $8.5 billion in 2017, according to United Nations statistics.
What we now see at the border—the desperate movement of families—reflects this sad reality. As in Mexico, the nations of Central America are afflicted by high unemployment, slowing growth, and rising criminality. If prosperity never fully arrived in Mexico, it was only scarcely glimpsed farther south.
This situation, and mass migration, can be addressed only through a strategic repositioning by the region’s dominant economic power. This would include more incentives for American businesses that have already decided to move operations out of the country and shift them to Mexico—where they would at least benefit both countries—instead of to China. For President Trump, whose comments about Latin America are often both ill-conceived and poorly received, this initiative would deprive China of markets and allow our closest neighbors to share in a new North American prosperity. It’s an idea that has gained some support within the administration, and from both Republicans, such as Marco Rubio, and Democrats, like prospective presidential candidates Julian Castro and Joe Biden.
A bold program that steers American investment, and that of allies, to Mexico and Central America could be critical to bolstering our trade position and creating newly receptive customers. And it could reshape the immigration debate by slowing migration—a win both for America and those countries desperately in need of creating opportunity for their citizens.
It also would serve to address the historic gap between our neighbors and ourselves. There’s an old saying in Mexico, ascribed to the nineteenth-century dictator Porfirio Díaz : Pobre Me’xico, tan lejos de Dios y tan cerca de los Estados Unidos, which means, “Poor Mexico, so far from God and so close to the U.S.” A reimagined American-Mexican alliance would make both sides happy to be neighbors again.
This piece originally appeared on City Journal.
Photo Credit: Martin D, via Flickr, using CC License.
Joel Kotkin is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. He authored The Human City: Urbanism for the rest of us, published in 2016 by Agate. He is also author of The New Class Conflict, The City: A Global History, and The Next Hundred Million: America in 2050. He is executive director of NewGeography.com and lives in Orange County, CA.
The people who build our homes increasingly can no longer afford them. As the state elite and their academic cheering crew celebrate our progressive boom, even the most skilled, unionized construction workers, notes an upcoming study, cannot afford to live anywhere close to the state’s major job centers.
In fact, notes the study, soon to be published by Chapman University, not a single unionized construction worker can afford a median-priced house in any of the major coastal counties, including Orange, Los Angeles, San Mateo, San Francisco, Santa Clara, San Diego, Alameda, Sonoma and Napa. Even with incomes averaging over $73,000 annually, notes author and economist Dr. John Husing, most can afford median-priced homes only in the further reaches of the Central Valley or the Inland Empire, requiring huge commutes.
This article first appeared on City Journal.
Contrary to media hype, tech firms and young workers aren’t flocking to “superstar” cities.
When Amazon decided to locate its second headquarters in New York, it cited the supposed advantages of the city’s talent base. Now that progressive politicians have chased Amazon out of town, the tech booster chorus has been working overtime to prove that Gotham, and other big, dense, expensive cities, are destined to become “tech towns” anyway, because of their young, motivated labor pools. That argument may sound great to New York Times readers or on local talk shows, but it is increasingly untrue. Read more
When the late Steve Jobs died in 2011, even protesters from the left-wing Occupy Wall Street movement mourned his passing. Today, it is unlikely that the passing of tech giant would elicit much in the way of sympathy from progressives or, for that matter, almost anyone else.
As Amazon’s expulsion from New York suggests, the tech oligarchs are gradually morphing from great saviors to widely perceived threats to the republic. Rather than gutsy entrepreneurs, they are seen increasingly as greedy oligopolists whose goal is to place society firmly under their digital control. A majority, notes the Pew Research Center, already feel they need to be more tightly regulated.
The oligarchs have managed to unite both the progressive left and the conservative right against them. The left objects that the tech industry remains almost totally un-unionized and seems to seek to eliminate gainful work for all but a handful. The right sees a threat to their political expression as they strengthen their hold on the means of communications, generally wiping non-progressive views from the screens of their customers.
Amazon’s decision to abandon New York City—leaving a $3 billion goodie bag of incentives on the table—represents a break in the progressive alliance between an increasingly radicalized Left and the new technocratic elite. Read more
President Trump may take blind patriotism too far, but his often nativist stance seems likely to prevail against Democrats whose policy prescriptions increasingly draw from “models” as China, Scandinavia or Germany. Such infatuations have been commonplace for a century among intellectuals inspired variously by Imperial Germany, fascist Italy, the Soviet Union or mercantilist Japan.
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Fred Murphy, used under CC 2.0 License
