On Jeff Immelt’s embittered but correct rant about protectionism

On Jeff Immelt's embittered but correct rant about protectionismJeff Immelt, the CEO of GE, gave the commencement speech recently at NYU’s Stern School of Business. His speech was mostly about the dangers of the world’s newly resurgent taste for protectionism.

This topic is front of mind for a lot of people. We often hear about it in the context of jobs. You’ll hear a lot about how our manufacturing jobs are being pushed overseas. It’s true that the US has about 2 million fewer manufacturing jobs today than it did 10 years ago. The real question becomes, what does this actually mean?

To make some progress here, we have to disconnect ourselves from real people that depend on real manufacturing jobs. That’s the hard part. We have huge numbers of people that were trained for manufacturing jobs. They’ve accumulated skills over decades of work. And they’re increasingly seeing their jobs vanish, likely never to return.

So, for the moment, keep these painful realities at bay. What do we ultimately hope to happen? The idea is, with the US being the most advanced economy in the world, that the US keeps the “best” jobs, and lets the “worst” jobs flow to other parts of the world.

What are the “best” jobs? The ones where we get to use our brains. The ones where we’re not doing repetitive, manual tasks that are easy to automate. Basically, we want to keep the jobs upstream of manufacturing, where we’re conceptualizing, designing, and strategizing. We keep the jobs that set the course followed by the less skilled laborers around the world.

Think about it another way. Before the era of globalization, the US needed a full spectrum of industries and jobs to satisfy our domestic demand. Today, because of the successes of globalization, we can pick and choose. Businesses choose to invest in some ways here in the US, and in other ways around the world. The trend is that high intellectual-capital investment is taking place in the US. And that means, for better or worse, the low intellectual-capital investment is being pushed elsewhere.

The fact that certain jobs land in certain places is an outgrowth of the philosophy of international trade:

The biggest advantage of international trade relates to the advantages accruing from territorial division of labour and international specialization. International trade enables a country to specialize in the production of those commodities in which it enjoys special advantages.

The US has a fantastic higher education system. The US has sufficient economic prosperity to afford many people a life of relative leisure. These advantages, amongst many others, promote a knowledge economy. The US does not have similar advantages when it comes to a manual labor economy.

When I think of this admittedly sensitive topic, I think of the slogan “Made in the U.S.A.”. Products with that slogan evoke a measure of pride in the US. Manufacturing jobs aren’t just jobs in America. They’re part of the culture. For many people, they’re woven deeply into the fabric of America.

Contrast “Made in the U.S.A.” with “Designed by Apple in California”. That’s what Apple prints on their products. It’s a subtle, but meaningful shift. Apple is declaring that the design work is what’s most important. The design holds their competitive advantage. The physical task of putting the pieces together isn’t as important.

This topic is sensitive for the reason I’ve already discussed…real people are losing real jobs. People relied on those manufacturing jobs to pay bills, to support their families. The loss of those jobs is a true tragedy for millions of families.

Another reason this topic is sensitive is the politics. Any politician can win votes by standing up for the people who’ve lost jobs. It’s easy to rail against big corporations or China. It’s a classic “us against them” position.

When you take a deeply personal issue like someone’s livelihood, and inject a heaping dose of politics…you’ll have a powder keg. That’s why it’s so difficult to have a reasoned, rational conversation about jobs and globalization.

It’s the same reason I found Jeff Immelt’s commencement address to be embittered. Immelt has a reason to feel attacked. He got into a back and forth with Bernie Sanders recently, where Sanders claimed GE was “destroying the moral fabric of America”. You also have all the debate about how much GE pays in US income taxes. GE is often in the spotlight in these kinds of debates. I’m sure Immelt is tired of defending his company.

Even though Jeff Immelt is angry, and people who have lost their jobs are angry…long term, the US wins if it can steer more of its workforce toward knowledge-heavy jobs over labor-heavy jobs. It’s a difficult discussion to have, but it’s necessary.

Leave a Reply

Your email address will not be published. Required fields are marked *