LAST week we started to review US President Donald Trump’s inaugural address, which repeatedly emphasized returning power to the people. That in and of itself could perhaps not be faulted, as the complaint that American political power has over time centralized too much in Washington has long been coming. Both seasoned Washington politicians and indifferent Washington bureaucrats have in a sense severed their understanding of the needs and wants of ordinary Americans, and aggregated decisions over many aspects of American lives to themselves. It is time for the American people to decide what is best for themselves.
But Trump went further than that. He appeared to believe that the loss of American jobs is the root cause of the present American economic slowdown. And for any party to attempt to “relocate” “American” jobs overseas would be, at least in Trump’s eyes, tantamount to absolutely treasonous acts. So, he stressed on “America First” in various paragraphs of his inaugural address, and vowed to “bring back” “American” jobs from overseas. On this score, I think there is plenty of room for argument.
In my humble opinion, the fundamental causes of the American economic slump consist, among others, of the overly strict regulations imposed on businesses by the aforementioned intractable bureaucracy. When coupled with the seemingly infinite expansion of special interests such as labor rights groups, as well as non-ending litigation to enforce these vested interests, this would inevitably compel business costs to rise. Therefore, many American businesses would naturally be attracted to move their operations to locations outside the US, especially to so-called emerging markets, where regulations are perhaps not as suffocating as back in the US, and where management-labor disputes may be adjudged more favorably to the owners. Some American businesses even choose to close shop to avoid becoming losing concerns due to these non-market constrictions, such as overzealous fines and vexatious litigations.
What Trump should do over the coming days is perhaps not to vociferously command the return of American businesses and “jobs” widespread around the world (including some in the Philippines and elsewhere in Southeast Asia) to American shores, for that will result in little, if any, success. He should instead adroitly utilize his powers as the American President to strive to reduce or altogether remove many of the overly bureaucratic regulations enacted primarily by successive Democratic administrations. Of course, not to forget lowering taxes for all, both businesses and individuals. If these steps could be properly taken, America would once again become an affordable and flexible business environment where entrepreneurship could spark and grow, and American businesses overseas would be more willing to “return” without excessive and ultimately useless prompting, bringing back with them Trump’s much vaunted “American” jobs.
But even more fundamentally, so-called bringing back jobs from overseas is not necessarily the best approach to resuscitate the American economy, or indeed any economy. We must be realistic in observing that the flow of jobs from more industrialized countries to less industrialized ones is due not only to the aforementioned overly strict regulatory reasons leading to higher business costs, but also because the economic development model in the industrialized countries has transformed into something (hopefully) more value-added, and it no longer makes economic sense for certain industries to be retained in these countries.
Even in a developing country like Malaysia, the first wave of foreign investments nearly half a century ago consisted mainly of labor-intensive industries such as garments. But as the country progressed in its industrialization efforts and labor costs became higher, many of these factories relocated to other relatively more affordable continental Southeast Asian countries. In this process, many workers lost their jobs, but they would have to relearn new skills and gradually adapt to a more service-oriented economy. It would be futile to call upon these factories to return and recreate the old jobs. And Trump as a former businessman should understand this better than any other American President. What he should be vigorously pursuing are new measures to encourage entrepreneurship and creativity in various American economic sectors, including lowering taxes and even capital stimulation. At the same time, he must also raise American educational standards in mathematics and the sciences, so that the American economy could be revived and more jobs could indeed be created in the long run.
At the same time, Trump did not hide his contempt for free trade, and instead extolled “protection” as leading to “great prosperity and strength”. This is akin to declaring the advent of trade protectionism during his administration. And Trump did later issue an executive order to renounce American participation in the previously American-led Trans-Pacific Partnership. America is blessed with abundant natural resources and a large high-spending market, and can thus afford to make such pronouncements. But to any other major economic power in the world, free trade remains a crucial means to enhance mutual economic well-being. It remains to be seen how this divergence in views on free trade could be bridged in the next four, if not eight years.