Stanford University

America's savings shortfall is hurting its workers, McKinnon asserts in op-ed

Authors
Ronald I. McKinnon
News Type
Commentary
Date
Paragraphs
Are federal fiscal deficits accelerating deindustrialisation in the United States? APARC's Ronald McKinnon considers the problem.

Are federal fiscal deficits accelerating deindustrialisation in the United States? For four decades, employment in U.S. manufacturing as a share of the labour force has fallen further and faster than in other industrial countries. In the mid-1960s, manufacturing output was 27 per cent of gross national product and manufacturing's share of employment was 24 percent. By 2003, these numbers had fallen to about 13.8 percent and 10.5 percent respectively. Employment in manufacturing remains weak, with an absolute decline of 18,000 jobs in September shown in the Labor Department's payroll survey.

At the same time, the orgy of tax-cutting, with big revenue losses, continues unabated. On October 6, House and Senate negotiators approved an expansive tax bill that showers businesses and farmers with about $145bn in rate cuts and new loopholes -- on top of what were already unprecedented fiscal deficits. These are principally financed by foreign central banks, which hold more than half the outstanding stock of US Treasury bonds. Moreover, meagre saving by American households is forcing US companies also to borrow heavily abroad.

The upshot is a current account deficit of more than $600 billion a year. America's cumulative net foreign indebtedness is about 30 percent of gross domestic product and rising fast. How will this affect manufacturing? The transfer of foreign savings to the US is embodied more in goods than in services. Outsourcing to India aside, most services are not so easily traded internationally. Thus when U.S. spending rises above output (income), the net absorption of foreign goods -- largely raw materials and manufactures -- increases. True, in this year and last the high price of oil has also boosted the current account deficit. However, since the early 1980s, the trade deficit in manufactures alone has been about as big as the current account deficit -- that is, as big as America's saving shortfall (for more detail, see http://siepr.stanford.edu).

If U.S. households' and companies' spending on manufactures is more or less independent of whether the goods are produced at home or abroad, domestic production shrinks by the amount of the trade deficit in manufactures. The consequent job loss depends on labor productivity in manufacturing, which rises strongly through time. If the trade deficit in manufactures is added back to domestic production to get "adjusted manufactured output", and labor productivity (output per person) in manufacturing stays constant, we get projected manufacturing employment. In 2003, actual manufacturing employment was just 10.5 percent of the US labor force, but it would have been 13.9 percent without a trade deficit in manufactures: the difference is 4.7m lost jobs.

In the 1980s, employment in manufacturing began to shrink substantially because of the then large current account deficit attributed to the then large fiscal deficit: Ronald Reagan's infamous twin deficits. With fiscal consolidation under Bill Clinton, the savings gap narrowed but was not closed because personal saving weakened. Now under George W. Bush, the fiscal deficit has exploded while private saving is still weak. The result is heavy borrowing from foreigners and all-time highs in the current account deficit. The main component remains the trade deficit in manufactures, intensifying the shrinkage in manufacturing jobs.

Is there cause for concern? Note that I do not suggest that the trend in overall employment has decreased, but only that its composition has tilted away from tradable goods -- largely manufactures. In the long run, growth in service employment will largely offset the decline in manufacturing. However, the rate of technical change in manufacturing is higher than in other sectors. It is hard to imagine the US sustaining its technological leadership with no manufacturing sector at all.

More uncomfortably, more Congressmen, pundits and voters feel justified in claiming that foreigners use unfair trade practices to steal U.S. jobs, particularly in manufacturing, and hence in urging protectionism. The irony is that, if imports were somehow greatly reduced, this would prevent the transfer of foreign saving to the United States and lead to a credit crunch, with a possibly even greater loss of US jobs.

The answer is not tariffs, exchange rate changes or subsidies to manufacturing that further increase the fiscal deficit. The proper way of reducing protectionist pressure and relieving anxiety about U.S. manufacturing is for the government to consolidate its finances and move deliberately towards running surpluses -- in short, to eliminate the U.S. economy's saving deficiency.

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Crisis on the Korean Peninsula: Implications for U.S. Policy in Northeast Asia

I am a child of the Cold War. As such, my thinking for decades was conditioned by the great issue of that era: How to maintain freedom in the face of our perceptions of Soviet ambitions for world domination?

For the first few decades of the Cold War, the United States strategy for achieving this objective was containment backed up with a powerful nuclear deterrence. But as the nuclear arms race heated up, it became increasingly clear that this strategy risked precipitating a nuclear holocaust. Thus, by the late sixties, nuclear arms control had become the overriding security issue - certainly it dominated my thinking on security during that era.

But with the ending of the Cold War, the threat of nuclear holocaust receded and arms control, as we had practiced it during that era, was no longer the dominant security issue. The most serious threat to the United States became nuclear weapons in the hands of failed states or terrorists - used not in a standard military operation, but in extortive or apocalyptic ways. Therefore, in the present era, preventing the proliferation of nuclear weapons replaces arms control as the organizing principle for our security. Certainly it has dominated my thinking on security for the last decade.

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Oksenberg Conference Room

William J. Perry
Lectures

Director's Welcoming Remarks

Authors
Gi-Wook Shin
News Type
News
Date
Paragraphs
Director, Gi-Wook Shin welcomes the new members to the Korean Studies Program at the beginning of 2004-2005 academic year.

Dear members of the Korean Studies community,

I trust that all of you have had a great summer and are now ready for the beginning of a new academic year. I welcome all of you back to campus and to another exciting year for the Korean Studies Program (KSP) at Stanford University.

First of all, I welcome the new members to our program this year. Philip Yun and John Feffer are our inaugural Pantech Fellows and will conduct research related to Korea, both North and South. Both Philip and John have distinguished careers and will be great assets to all of us at KSP. Philip has held high-level positions at the State Department and worked closely with former Secretary of Defense, Dr. William Perry, in addition to practicing law in both Korea and the U.S. John is an accomplished writer and editor, and his most recent publication is North Korea/South Korea: U.S. Policy at a Time of Crisis. I would also like to welcome Jasmin Ha, who will serve as our new Program Coordinator and assistant to me. She worked previously at The Korea Society in New York City and brings to us both her experience and vision for Korean studies at Stanford. Soyoung Kwon, a North Korean expert, will also be staying at APARC as a Shorenstein Fellow for the coming year.

Hong Kal and Chiho Sawada, post-doctoral research fellows, will remain with us for another year. Hong has accepted a tenure-track assistant professorship at York University, but will not start her appointment until the 2005-06 year. Rakhi Patel, our student assistant, will continue to work part-time to assist Jasmin and myself.

We will resume our popular luncheon seminars on October 15 with a presentation by Eric Larson of the Rand Corporation on his project on South Korean attitudes towards the United States. There will also be numerous other exciting events and programs on Korea-related issues throughout the coming year. Please visit our website for more detailed and continuously updated information.

KSP is also now home to the Journal of Korean Studies for which Chiho and I serve as associate editor and co-editor, respectively, of the journal. In addition, we have been engaged in a number of exciting projects. I have just finished my overdue book on Korean ethnic nationalism and am currently working with Kyu Sup Hahn, a doctoral student in Communications, on a project on U.S. media coverage of Korea and South Korean media coverage of the U.S. from 1992-2004. We will also continue on-going projects such as "Globalization in Korea" and "Historical Injustice, Reconciliation, and Cooperation." I appreciate the assistance of the many students and researchers who have been working with me on these projects over the years.

This year we will do an international search to fill the William Perry Chair in contemporary Korea. This is an extremely important appointment for the Korean Studies Program at Stanford, and you will have the opportunity to meet candidates throughout the year.

Thanks again for your continued support of the Korean Studies Program at Stanford. I look forward to seeing you at the various KSP events and programs throughout the year.

Cordially,

Gi-Wook Shin,

Director

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A New Beginning? What the United States can do with Europe now

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A lecture by Timothy Garton Ash to mark the 15th anniversary of the fall of the Berlin Wall and the election of the 44th President of the United States.

Timothy Garton Ash's new book Free World: America, Europe and the Surprising Future of the West will be published in the United States on November 9, the day the Berlin Wall was breached in 1989. He is a Professor of European Studies at Oxford University and a Senior Fellow of the Hoover Institution at Stanford University. His previous books include The Magic Lantern, his eyewitness account of the velvet revolutions of 1989, The Polish Revolution: Solidarity, The File: A Personal History, In Europe's Name: Germany and the Divided Continent" and "History of the Present.

Oak Lounge

Timothy Garton Ash Professor St. Antony's College, Oxford University
Lectures

Heather Ahn

Shorenstein APARC
Stanford University
Encina Hall E301
Stanford, CA 94305-6055

(650) 724-8271 (650) 723-6530
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Heather Ahn is program manager for the Korea Program at the Walter H. Shorenstein Asia-Pacific Research Center. Before joining Shorenstein APARC, she worked in the computer industry, primarily in system software development. She was a software engineer (MTS) at AT&T Bell Labs where she received an Exceptional Contribution Award, and worked as a systems programmer and a network communications architect at the major US computer manufacturing corporations. She also provided consulting for Korean high-tech firms in the U.S. She received a bachelor's degree in computer science from the University of Minnesota and in political science from Ewha University in Korea. Her graduate studies concentrated on information management systems.

Korea Program:

Korea Program News

Koret Fellowship

Pantech Fellowship (no longer offered)

Korea Program Visiting Scholars Program

Korean Studies Colloquium Series

Korea-U.S. West Coast Strategic Forum

Koret Workshop

Koret Distinguished Lecture Series

Hana-Stanford Conference on Korea for U.S. Secondary School Teachers

Sejong Korean Studies Scholars Program

Program Manager, Korea Program
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9/11: Looking Backward and Looking Forward

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Philip Zelikow is the Executive Director of the National Commission on Terrorist Attacks Upon the United States, better known as the "9/11 Commission." He will speak about his work with the Commission.

Dr. Zelikow is also the Director of the Miller Center of Public Affairs and White Burkett Miller Professor of History at the University of Virginia. After serving in government with the Navy, the State Department, and the National Security Council, he taught at Harvard before assuming his present post in Virginia to direct the nation's largest research center on the American presidency. He was a member of the President's Foreign Intelligence Advisory Board and served as executive director of the National Commission on Federal Election Reform, chaired by former Presidents Carter and Ford, as well as the executive director of the Markle Foundation Task Force on National Security in the Information Age.

Kresge Auditorium
Stanford University

Philip Zelikow Executive Director National Commission on Terrorist Attacks Upon the United States
Lectures

A Chance of Success Slips Away

Authors
News Type
Commentary
Date
Paragraphs
CDDRL Visiting Fellow J. Alexander Thier questions President Bush's assertion that Afghanistan is on a path to democracy. In three years, he notes, the United States has failed to create a secure, stable or prosperous Afghanistan.

President Bush describes Afghanistan, the first front on the war on terrorism, as a success. In comparison to Iraq, perhaps it is. But if you look at Afghanistan on its own merits, the lack of progress is disheartening. In 2002, President Bush promised a "Marshall Plan" for the country, with the goal of turning Afghanistan into a stable, democratic state. On Tuesday, before the United Nations General Assembly, the president said that "the Afghan people are on the path to democracy and freedom." Yet in nearly three years we have failed to create security, stability, prosperity or the rule of law in Afghanistan.

These failings are not just a reflection of the great difficulties of nation-building in places like Afghanistan, they are also the direct result of the Bush administration's policy decisions. Our efforts in Afghanistan are underfinanced and undermanned, and our attention is waning.

The root of the problem is that we invaded Afghanistan to destroy something - the Taliban and Al Qaeda - but we didn't think much about what would grow in its place. While we focused on fighting the terrorists (and even there our effectiveness has been questionable), Afghanistan has become a collection of warlord-run fiefs fueled by a multibillion-dollar opium economy. We armed and financed warlord armies with records of drug-running and human rights abuses stretching back two decades. Then we blocked the expansion of an international security force meant to rein in the militias. These decisions were made for short-term battlefield gain - with disregard for the long-term implications for the mission there.

Our Army continues to hunt insurgents in the mountains, but we have refused to take the steps necessary to secure the rest of the country, and it shows. More coalition and Afghan government soldiers and aid workers have died this year than in each of the previous two. This summer, Doctors Without Borders, which has worked in the most desperate and dangerous conditions around the world, pulled out of Afghanistan after 24 years. In other words, the group felt safer in Afghanistan during the Soviet occupation and the civil war that followed than it did three years after the United States-led coalition toppled the Taliban.

Last month, after a United Nations-backed voter registration office was bombed, the vice president of the United Nations Staff Union urged Secretary General Kofi Annan to pull employees out of Afghanistan. The opium trade is also out of control, fueling lawlessness and financing terrorists. Last year, the trade brought in $2.3 billion; this year, opium production is expected to increase 50 to 100 percent.

Amid terrorist attacks and fighting among regional warlords, the country is preparing for presidential elections on Oct. 9. A recent United Nations report warned that warlords were intimidating voters and candidates. This month, the Organization for Security and Cooperation in Europe, which has monitored post-conflict elections in trouble spots like Bosnia and Kosovo, declared that Afghanistan was too dangerous for its election monitors (it is sending a small "election support team'' instead). President Hamid Karzai narrowly escaped assassination last week on his first campaign trip outside Kabul, and eight other presidential candidates have called for elections to be delayed, saying it's been too dangerous for them to campaign.

Many of these problems flow from early mistakes. Rather than moving quickly to establish security and then gradually turning over control to a legitimate domestic authority, we have done the opposite. As fighting among warlord militias in the countryside intensifies, we are slowly expanding our presence and being dragged into conflicts. The American "advisers" in Afghan Army units, the ubiquitous heavily armed "private" security forces and the fortress-like American Embassy are garnering comparisons to the day of the Soviets.

In Kabul, the effort to build a stable, capable government has also lagged dangerously. President Karzai has begun to show great fortitude in challenging warlords. But his factious cabinet, born of political compromise, has collapsed under the pressure of the country's hurried presidential elections. Outside Kabul, his control remains tenuous in some places, nonexistent in others. Kabul's Supreme Court, the only other branch of government, is controlled by Islamic fundamentalists unconcerned with the dictates of Afghanistan's new Constitution. On Sept. 1, without any case before the court, the chief justice ordered that Latif Pedram, a presidential candidate, be barred from the elections and investigated for blasphemy. His crime? Mr. Pedram had suggested that polygamy was unfair to women. These clerics are trying to establish a system like that in Iran, using Islam as a bludgeon against democracy.

It's true that there have been several important accomplishments in these three years: the Taliban and Al Qaeda no longer sit in Kabul's Presidential Palace; girls are back in school in many parts of the country; some roads and buildings have been rebuilt; and more than 10 million Afghans have registered to vote for the presidential elections. Thousands of international aid workers have been working with the Afghans, often at great risk, to make things better. Despite the slow progress, most Afghans are more hopeful about their future than they have been in years.

But many people working there are left with the nagging feeling that much more could have been done both to help Afghanistan and fight terrorism over the last three years. Our experience demonstrates that you can't fight wars, or do nation-building, on the cheap. Afghanistan should be a critical election issue this year, but Iraq looms much larger in the public mind. Unless the next administration steps up to the plate, it may well be an issue in four years, when we start asking, "Who lost Afghanistan?"

J Alexander Thier, a fellow at the Hoover Institution and the Center on Democracy, Development and the Rule of Law at Stanford University, was a legal adviser to Afghanistan's constitutional and judicial reform commissions.

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Germany after the Dictatorships: Totalitarianism and its Consequences

In the context of the Iraq Wars, references to totalitarianism multiplied across the political, cultural, and intellectual spectrum. For every equation of Saddam with Hitler, another followed projecting the Nazi past onto the American present. While the end of the most recent war has led to the macabre discovery of the Iraqi killing fields, some German intellectuals have drawn the conclusion that American moral authority has come to an end. Current politics aside, the first question we hope to raise involves the legitimacy of this proliferation of the term totalitarianism, either directly or through rhetorical invocations of features of Europe in the thirties and forties: appeasement politics, firebombing, attacks on civilians. A conservative usage of the term might restrict it to the regimes of Hitler and Stalin; alternatively, it could be utilized as an analytical tool for multiple political phenomena of the late twentieth century (and beyond). We want to explore the consequences of these different strategies through a reflection on the term itself and its appropriation in various venues.

While these questions can and should be pursued with regard to many national histories, the German experience with totalitarianism in the twentieth century is particularly intriguing. The Weimar Republic witnessed the rise of both Communist and National Socialist movements, with revolutionary aspirations, in the wake of which, ultimately, two dictatorial political systems followed. To be sure, the two cases are not symmetrical; the GDR was unthinkable without Russian occupation and the Cold War. Nonetheless, large segments of the German population lent their support to both regimes, at times with enthusiasm and at times under duress. While the collapse of the Nazi regime led eventually (if not quickly) to a critical discourse on the past, a parallel scrutiny of the Communist era has not yet developed to the same extent. In light of the renewed totalitarianism discourse, a review of this past seems more urgent than ever. We are interested in examining the Communist experience in relationship to National Socialism, with regard to both similarities and differences, and in terms of philosophical, historical, and literary/cultural frameworks.

Fisher Conference Center
Arrillaga Alumni Center
Stanford University

Workshops

Promoting Democracy and the Rule of Law: EU and US Strategies and Instruments

This workshop will focus on the strategies used by the United States and European Union in promoting democracy and the rule of law in the developing world. Participants include Laurence Whitehead of Oxford University, Peter Eigen, Chairman of Transparency International, Carl Gershman, President of the National Endowment of Democracy, as well as scholars from the CDDRL community.

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Oksenberg Conference Room

Workshops
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