Public policy: Less free trade, more innovation

When “that didn’t work before” is constantly the response to all options on the table, it is time to find a different approach.  The first place to start is where others have been successful.  It is, however, more important to understand why an idea may have been successful and when it might fail.  This is especially true when it comes to building an economy and community.

In response to the so-called Freddie Gray riots, narratives pointing to Baltimore’s longtime struggling economy have started to emerge as a means of explaining the massive civil unrest.  It is argued that Baltimore needs more upper Middle Class individuals to build to a self-sustaining economic revival.  Where New York is a hub for international commerce and Washington, DC feeds off government spending, Baltimore lacks an economic base capable of supporting a strong consumer economy.

For many communities ailing from economic woes, whether small or large, it is easy to see this same need exists.  Where efforts to attract upper Middle Class individuals may work for a Baltimore or Pittsburg, as well as a number of smaller communities that offer some cultural benefit to more affluent individuals, it is not a plan that can work for every struggling community, especially when affluent individual do not spend enough money in their host communities. 

Meanwhile, most Middle Class jobs do not follow workers.  The workers tend to follow the jobs.  Quite frankly, there are not enough upper Middle Class jobs Americans to revive most communities in the country, even ones that have been successful in the past.  As such, the real task for Baltimore and all other struggling communities, including those in underdeveloped nations, is creating new Middle Class industries. 

Ultimately, the lesson learned from Baltimore is that strong consumer spending drives a healthy populous economy sustained by a vibrant Middle Class.  That said, it is not just consumer spending that keeps an economy healthy.  It is the ability of the economy to return wealth to consumers, so they can sustain their consumption.  In other words, a viable consumer economy must also support Middle Class jobs.

Policies like free trade help boost consumption by making goods cheaper and creating overseas markets for exporters.  Unfortunately, they also undermine sustained consumer spending when free trade agreements lead to increased importing of goods and the outsourcing of jobs.  

Wall Street may see greater profits from policies like free trade and the temporary boost it can give corporate profits, but those profits are only a share of the wealth being exported.  To boot, the global economy is a lowest bidder economy, which means those living in underdeveloped countries will be undermined by the same forces that drive down the cost of labor and job destruction. 

Similarly, deregulating industries and finding other ways to reduce costs will only delay the harmful effects of our lower bidder economy while further undermining worker rights, causing health concerns, exasperating environmental issues, and displacing others costs onto communities.  Reducing tax rates for the rich also puts a greater burden on the Middle Class and allows them to profit more from the economy while spending more government dollars alleviating poverty is not a sustainable solution. 

Furthermore, it is also important to recognize many African, Middle Eastern, and South American countries are very wealthy.  Unfortunately, they also face massive poverty despite their wealth of natural resources.  In other words, they face the same economic disparity that the United States struggles to reverse.

Historically, America businesses were successful, because businesses were providing for the needs of Americans while competing over quality and innovation, not the lowest price.  Instead of embracing policies that drive wealth into the pockets of the few, the world needs to embrace policies that drive wealth into the pockets of innovators, so their innovations can create the Middle Class jobs all the economies of the world need.

With free trade, policymakers and economists assumed America would develop an economy fueled by the service sector and intellectual property.  Clearly, this model does not provide for the interests of most Americans as most do not own significantly valuable intellectual property and service industry jobs are often low paying, but policy shifts can help better spur the good paying jobs people need.

Steering too much money into the financial sector via the capital gains tax deduction may well have hurt the economy, because doing so diverts money away from job creating investments.  Coupled with improved patent laws, offering a tax discount on par with Bush-era capital gains tax deductions for royalty payments on novel technologies and other innovations would make them far more valuable.  By making patents and other intellectual property more valuable, financial capital would be steered toward innovation, thus ultimately accelerating the creation of new industries and jobs.

Finally, employers also must do more to tap the human resources available to them.  Unfortunately, employers seek hires with degrees to fulfill specific positions while many academic institutions offer courses that unnecessarily force students to pursue formal lifelong learning.  Instead, they need to focus on hiring employees with broad base, dynamic skill sets that allow them to continually learn new skills in their work environment and seek out innovate ideas.  They also need to give the freedom to explore innovative ideas.