The Betrayal of the American Dream (25 page)

From the start, there was a decidedly pro-China tilt to the process of bidding for the project. Schwarzenegger had urged the Chinese to submit a bid. Ultimately the project went to a joint venture between the Chinese and the American Bridge Company of Coraopolis, Pennsylvania, a legendary name among American bridge builders. Steel from American Bridge had gone into San Francisco’s Golden Gate Bridge and New York’s Brooklyn Bridge as well as some of the nation’s most famous office towers, including the Woolworth and Chrysler Buildings in Manhattan. But this time the steel was to be cast in China; American Bridge no longer made steel. It was just an assembler.

Even the president and chief executive officer of American Bridge, Robert H. Luffy, favored China, believing that Chinese steel would be cheaper than American. He also didn’t believe that any U.S. companies were capable of handling such a big job. As he explained to a congressional subcommittee during a 2007 hearing:

The largest steel fabricating facility in the United States for bridges . . . is probably 300 or 400 people on the floor working. I was in a facility that is going to fabricate the steel for the Oakland Bay Bridge. . . . They have 32,000 people in that facility. It is not even a contest. It is not even a contest.

The United States was not the steel power it once had been. Years of allowing low-cost imports subsidized by foreign governments had decimated American steelmaking. A succession of U.S. Congresses and administrations from both parties occasionally complained about unfair trade practices, but the complaints always made little headway, as neither Democrats nor Republicans had the backbone to do anything substantive about them for fear of antagonizing our trading partners. Consequently, the once-powerful steel industry slowly shriveled.

But that didn’t mean the United States was incapable of producing steel for the Bay Bridge. Even though there was no longer one company, such as Bethlehem Steel, that could do the work, the job could have been done by a consortium. And such a consortium could have been created if there had been the slightest encouragement and assistance from policymakers in California and Washington.

Oregon Iron Works in Clackamas, Oregon, was ready to be part of a consortium. Tom Hickman, the company’s vice president, said a group of Oregon steel fabricators was ready to build a new plant to manufacture girders for the Bay Bridge. “We put together a group that was willing to put up $30 million to build a new facility on the Columbia River,” he said. In what could have been “really a countrywide effort,” Hickman said, “other parts of the project could have gone to steel mills in Illinois, Indiana, and Pennsylvania.” The contract, he said, could have provided jobs for fabricators, plate makers, drivers, material handlers, and others. “The chain of events goes out everywhere and probably would have affected almost every state,” he said.

Because of its size and unique design, the new Bay Bridge was a daunting engineering and manufacturing challenge. But the sheer daring and unknowns involved in such a revolutionary design were considerations that the American bidders may have factored into their original bid but that their Chinese opponents overlooked or ignored.

Nevertheless, the contract went to the Chinese. The California Department of Transportation (Caltrans) bought into the argument that it was easier and cheaper to go with the Chinese. The cheaper argument, which would later turn out to have been a fallacy, always plays well with American politicians and bureaucrats in the beginning, even if it often doesn’t work out that way in the end. They count on the short-term memory loss of the country’s voters. Any serious idea that the work might be done in the United States was never entertained. The Bay Bridge project exemplifies how some politicians have abandoned even the pretense that they want to create jobs in America.

After the contract was awarded, problems surfaced in the quality of the work being done in China. Initial checks found that as many as 65 percent of the welds failed to meet specifications. To oversee the work, Caltrans had to dispatch two hundred engineers and contractors to China to provide technical advice, answer questions, and make sure the finished pieces met specifications. The Caltrans engineers were in China for months, their work there adding significantly to the original cost.

Schwarzenegger had justified awarding the contract to China on the basis of numerous savings he claimed it would produce. By his count, he saved $400 million for his state when the contract went to Shanghai. His calculation did not, however, take into account the wages lost by steelworkers and ironworkers who otherwise would have been employed on the project and which could have run into the hundreds of millions of dollars. It did not take into account the taxes those workers would have paid, from state income taxes to Social Security and unemployment taxes, a figure that would easily have totaled tens of millions of dollars. It did not take into account the multiplier effect of potentially hundreds of millions of dollars as well from all the potential benefits derived from the daily purchases made by people with jobs. It did not take into account all the local taxes that employed workers pay for schools and local government. Nor did it take into account all the tax revenue that state and local governments had to expend for unemployment, health care, and other costs run up by people who have no jobs. All told, hundreds of millions of dollars would have stayed in the United States and been plowed back into our economy. In short, what might look like a “savings” was anything but. The ultimate cost of the bridge is anyone’s guess, although some estimates put the figure for the entire project, including interest, at $12 billion. What’s clear is that the United States lost an exceptional opportunity to create good-paying jobs at home during a time of high domestic unemployment.

“If that investment could have been made here, it could have provided jobs here,” said Oregon Iron’s Hickman. “These jobs are living-wage jobs and family-wage jobs. They provide health and welfare benefits, 401 (k)s, and pensions. Our facilities meet all of the environmental requirements, and it just is a very, very difficult thing to compete with the Chinese when you are really competing with the Chinese government.” Or when Oregon Iron and other domestic producers find themselves competing against not only the Chinese government but their own government.

The contrast between the actions of today’s policymakers and those who built the original Bay Bridge is dramatic. Construction started and ended during the Great Depression, providing urgently needed jobs, with financing arranged by a new government entity created to boost employment, the Reconstruction Finance Corporation (RFC). The steel for the bridge was the largest order ever placed for steel in the United States up to that time, and it put thousands of steelworkers and suppliers to work for years, generating income for their families and their communities. One of the largest infrastructure investments ever made up to then, the bridge once completed returned many times its original cost over the years in its boost to commerce and industry in the Bay Area alone.

By creating jobs for Chinese steelworkers, American politicians are making it all but certain that the domestic steel industry will continue to weaken. If it is an industry in which no one company today is capable of doing work on the scale of the Bay Bridge, then after another Bay Bridge or two, not even multiple U.S. companies will be able to tackle such undertakings, and the blue-collar workers will be followed out the door by the white-collar professionals—the engineers and draftsmen.

That’s what makes Schwarzenegger’s words in a factory in Shanghai all the more poignant. Any number of American workers would have loved the chance to weld, paint, lift, design, ship, and perform all the other chores required to help California rebuild its Bay Bridge. But they were not given that opportunity. Nor is it likely that they will be offered a stake in any similar undertaking in the future. U.S. politicians in thrall to a simplistic trade ideology would rather create jobs for people in China than for American workers.

JUSTIFYING JOB LOSSES

The chief culprit in the destruction of good jobs in America is this country’s blind adherence to unrestricted free trade.

The concept of free trade goes back to the writings of Adam Smith and David Ricardo in the eighteenth and nineteenth centuries; these theorists held that trading nations should do away with tariffs and freely accept each other’s products. As the theory goes, the country that can make a product most cheaply should specialize in that item and sell it to other countries, which enables that country to earn the money to buy specialized goods from other countries. In this ideal global economy, everybody is open to each other’s products, and whoever has the best or cheapest wins out in this level playing field. It’s a simple theory, and there is much to recommend it—providing that all trading nations abide by the same rules.

But the simple theory bears scant resemblance to the version of free trade practiced in this country. Here there is little or no attempt to promote fair trade. There are no safeguards for domestic workers and industries. There’s no attempt to balance exports and imports, hence our mammoth trade deficit. U.S. trade policy has essentially been hijacked by multinational corporations, which have found it in their interest to ship work abroad and then bring products made offshore back to the United States while paying the lowest possible tariffs. This wide-open policy has enriched the biggest corporations, but it has been catastrophic for many U.S. industries at home and for millions of workers.

While the United States has lowered its trade barriers and now welcomes imports from around the world, many of our trading partners are not as open and commonly erect trade barriers to U.S. products. Japan has consistently frustrated efforts by the American auto industry to export products to Japan. When American businesses and workers protest these unfair trade practices and call for tariffs or some other penalty against an offending country to level the playing field, free-traders such as the Cato Institute or the Heritage Foundation in the United States go ballistic and claim that tariffs would violate principles of free trade and would be a form of protectionism. Their oft-heard charge is, “We can’t build walls around the country.” To levy tariffs against a nation that has failed to live up to basic trading rules is not protectionist: it’s called equity for American workers and businesses.

To make matters worse, many nations subsidize industries that make products specifically designed for export to America. Produced at an artificially low cost, these goods sell for less than the same products made in the United States. That kills jobs and businesses here, and it’s a basic violation of free trade: nations aren’t supposed to bankroll their companies to gain an export advantage. But many do, and they are rarely forcefully challenged by the United States.

The Chinese are masters of the art. China’s government subsidizes numerous enterprises that compete directly with American businesses. Moreover, the Chinese government has weak labor and environmental laws and regulations. For many U.S. companies, it is remarkable that they can compete at all, given the way the deck is stacked against them.

The fathers of free trade—Smith and Ricardo—never envisioned a world in which developing nations would be sending their products to developed nations. Their concept of free trade depended on two conditions: first, that the countries trading would have fundamentally shared value systems; and second, that because of the time involved in the transportation of goods by sail (they had not envisaged the trading of services exactly), local products would always retain a competitive edge. Neither factor applies anymore. Smith and Ricardo never envisioned a time when a domestic manufacturer would invest in a foreign plant to produce products for the home market. Smith, whose
Theory of Moral Sentiments
was as important to him as the
Wealth of Nations,
which is selectively cited by free-trade ideologues, would have decried a financial relationship that based short-term profit on the ability to outsource manufacture to countries whose labor conditions were worse in every way. In Smith and Ricardo’s model, countries with similar economies would open their markets to one another to exchange locally produced goods and reciprocal courtesies in the same way that the present-day European Union operates.

No matter what free-traders in the United States say about the wonders of open markets, the Chinese are pursuing an entirely different approach as they target one industry after another through aggressive trade policies. Solar power was briefly viewed as one of America’s most promising new industries. Solar photovoltaics, the alternative energy technology on which the greatest hopes are pinned, was invented in the United States at Bell Laboratories in 1954. By the 1980s, the United States was the leading manufacturer of solar photovoltaic panels to generate electricity for businesses and homeowners. Yet by 2011, the Chinese had taken over the market: by then, more than 50 percent of the solar photovoltaic panels installed in America were made by Chinese companies. Chinese solar imports jumped from $21.3 million in 2005 to $2.65
billion
in 2011.

What happened?

In the last decade, the Chinese government set out to capture the market for manufacturing solar panels. It pumped the equivalent of billions of dollars into the country’s nascent solar industry in low-cost loans, subsidies to buy land, discounts for water and power, tax exemptions, and export grants. Government aid to subsidize an export industry is illegal under global trading rules, but the Chinese forged ahead and soon cornered the world market on solar photovoltaic panels. China’s exports of solar cells and panels to the United States rose a phenomenal 350 percent in just three years, from 2008 to 2010.

As massive volumes of Chinese government–supported solar cells and panels surged into the United States, prices in the domestic market collapsed. The Coalition for American Solar Manufacturing, in an October 2011 trade action, explained the consequences: