Former President Bill Clinton has always had an impressive ability to explain complicated issues in a way that leaves his audience thinking, “duh, of course”--even if they’d never quite had the same thought before. I came away with that feeling again from the keynote speech he delivered at the annual conference of the U.S. Export-Import Bank.
The reason for the speech was to encourage Congress to reauthorize the bank--which is critical for funding U.S. exports to developing countries of big ticket items like airplanes, locomotives, satellites, and power plants. If Congress does not act by May 31, and it has failed to do so already once, the bank will be prevented from offering any new financing. Other countries are already lining up to lure the business away from the United States. Allowing Ex-Im Bank’s funding authority to lapse would be another in a growing list of self-inflicted economic wounds.
But the real brilliance of the speech was his simple analysis of the relationship between globalization and growing income inequality in the United States. Citing the seminal CFR working paper by my Renewing America colleague Michael Spence, he noted that there has been essentially no job growth over the past two decades in the tradable sectors of the economy, like manufacturing and business services. The job growth has all taken place in non-tradable sectors like health care and government. And while productivity growth has accelerated in the tradable sectors, it has been largely stagnant in the non-tradable sectors.
What does that mean for American workers? “Americans who work in the tradable sectors of the economy are likely not only to get jobs with higher starting pay, but pay that increases with the growth of the companies," Clinton explained. "People who work in the non-tradable sectors are much more likely to get jobs not only with lower starting pay, but without pay raises that keep up with inflation and economic growth.”
The consequences can be seen in Roland Stephen's superb analysis of North Carolina and its efforts to respond after import competition decimated once successful manufacturing industries. The trend of the past two decades--with fewer people working in the higher-wage, high-growth sectors of the economy, and more working in the lower-wage, low productivity sectors -- is not a recipe for economic success.
The stakes are even higher, Clinton argued. If the United States continues to create jobs only in low productivity, non-tradable sectors, the economic foundations of its leadership will erode. “If America once again wants to lead the world towards shared prosperity, we have to be able to change the internal dynamics of growth in this country,” he said. “And one key component of that must be to increase employment in the tradable sectors, which means increased exports.”
“In more common language that would be appreciated in my home state of Arkansas," he continued, "If you’ve got 4 percent of the world’s people and you want 20 percent of the world’s income, you’ve got to sell something to somebody else.”
The speech captured how important trade has become both to America’s standard of living and to its status in the world. Since the end of recession, exports have accounted for fully half of U.S. economic growth. The strong performance has some analysts, including Tyler Cowen of George Mason Univerity and Hal Sirkin of the Boston Consulting Group, predicting a manufacturing revival in the United States.
Clinton has long been out front on these issues. He was critical in leading the Democratic Party to support the North American Free Trade Agreement, and he largely did it without sugar-coating what was at stake. As he wrote in his 1996 book Between Hope and History: “Open markets mean products come into America that are made by people who work for wages Americans can’t live on. This can cost some American workers their jobs and keep others from getting a raise.”
But he believed, and all the evidence shows he was right, that globalization was inevitable, and that Americans would have to find a way to compete successfully in this new world. That remains the challenge today. More than ever before, success in trade is critical to raising living standards for Americans. As he has done so often before, Clinton makes that seem self-evident.