By Kumar David –

Prof. Kumar David

There have been about 60 comments on my piece on Wednesday about whether Trump populism is similar to Mussolini populism (neither it, nor conditions in the US, have any resemblance to Hitler and Germany in the 1930s). Most comments were additions and adumbrations, several were debates between commentators and of course there were a few abusive messages that Colombo Telegraph readers have learnt to ignore. I do not need to get involved in the nitty-gritty of the exchanges; its healthy so let it go on. There are three substantive issues that are worth pursuing. They are Racism, a technical point about US economic un-competitiveness and thirdly how likely it is that Trump will ditch his promised programme. First let me mention that Hilary polled 58.91 million votes, a fraction more than Trump’s 58.86 million.

Racism

Trump’s racism was anti-Latino not anti-black. His boorish outbursts against Mexicans and Latinos are a case of driving up the ramp for opportunism. Lanka has been a victim of opportunism and it has destroyed unity in the country. It is said that SWRD was a sophisticated and educated man, not an intrinsic racist; he whipped up Sinhala sentiment as a tool to come to power, but the sorcerer’s apprentice consumed the sorcerer – he lost control of his own creation. JR’s case is worse because he was a racist in personality and it was no wonder he egged on 1983. The consequences were Indian intervention and a prolonged civil war. Even in a worst case scenario, if Trump unable to deliver his promises to estranged white working class and anti-establishment America, tries to incite racism I do not think the consequences would be anywhere near tragic as these examples. Nevertheless race baiting will do some harm and I want to devote two paragraphs to the matter.

“What s joke this bugger is!” “I’m deaf to whatever he says”

An underlying factor is that the white population will fall to 46.6% according to the Bureau of Census and Statics by 2050 (quoted in Wikipedia); Latinos will rise to 28%, blacks14.4% and Asian-Americans 7.7%; just over 5% will be of mixed descent. Ethnic problems are confounded by economic decline and not withstanding that the US at this moment (late 2016) is doing best among the advanced capitalist countries, most economists are wary about the next two to five years. Even an establishment bastion like JP Morgan-Stanley reckons “the probability of a recession within three years is a startling 92%, and the probability within two years at 67%”. Worse both British Marxist economist Michael Roberts and my friend Prof Harsha Sirisena in New Zealand emphasise, economic policy tools such as printing money, cutting interest rates or increasing government spending are not available. These tools have been used up, so there no way to avoid a slump. Trump will have to sip from a poisoned chalice! (Roberts: http://wp.me/pLequ-3su; Sirisena: personal correspondence).

Possible US recession

In my piece I referred to I proposed a very simple index called PP (productive power or potential) to denote how competitive a country is in global export markets. It was not intended as a fancy economic category but a guideline for simpletons like yours faithfully and other simple folk. My attention was the US manufacturing sector and I said let, PP = (MO/BP), where MO is manufacturing output and BP the human resources benefit package (wages and benefits like social security, employment benefits and free, or subsidised healthcare). Two amendments were proposed to this by Asela Dahana in a personal note and Kumar R in a 10 November input in CT’s comments column.

AD’s contention was that US wages are not disproportionately high and it is only the benefits part of BP that is out of kilter. This is not correct; wages in the US are the big contributor to BP. If we use $12 per hour as indicative, then it is more than 12 times the wage in Lanka and more than 12 times the wage in Bangladesh and India. It is also about 5 to 7 times the wage in China – depending on which city. The ratio of benefits is probably comparable (12+, 5 to 7 etc) – China gives free education and basic health care to all and subsidised or free housing; Lanka gives free education, healthcare to those in need and food and service (electricity) subsidies. Therefore the relative competitiveness of USA, Mexico, China or Bangladesh, are not changed whether you include only wages or benefits and wages in BP.

More important is can the US lower cost of production to beat global competition without cuts in wages and benefits? No, you cannot beat the iron laws of economics. US companies cannot circumvent a falling rate of profit and will not invest. Protests breaking out all over the US, even before Trump assumes office, show that slashing wages and benefits is out of the question. But Trump has to make good on promises of millions of jobs and vast empires of new industries.

US and EU companies are decamping in droves to China & Vietnam (all types of goods including digital products), Bangladesh & Lanka (garments), Mexico (white goods) and India (out sourcing) because it is more competitive. Can the US impose a 30 to 50% import tariff (depending on the good) to protect local manufacturers? If it does, it becomes a new sales tax on consumers. Money goes to the treasury from the consumer via customs collection. Consumers will revolt. Furthermore US exports will not export so long as costs remain 30% to 50% higher. If US firms are prevented from shipping goods back home if plants are moved overseas they will register overseas to become foreign firms. I may be a simpleton but I just don’t see any way out of this comprehensive jam.

What to include in BP

Commentator Kumar R argued that the denominator BP in my little formula should in addition to wages and benefits include profits. The logic that if profit expectations of a country are high it will be less competitive is correct. Ok but let as think this though together. MO in the numerator depends on capital stock, investment, productivity and work-force skills. These are all stable and change slowly over time. Similarly wages and benefits cannot change fast unless there is a coup like 1973 in Chile or a massive onslaught like the Regan-Thatcher neoliberal attack on rights. Company profit targets are subjective and can change quickly. Their inclusion may not lead to a stable but a volatile index.

But KR, the more important point is unless you are saying that there is a vast difference in profit levels between say USA, China, Mexico, Bangladesh and Lanka the relative positions are not likely to be affected by whether you include or exclude profits in BP.

Maybe Trump will be trumped

There is a way in which Trump can survive; quietly ignore campaign promises and continue (with face saving cosmetic changes) Obama policies. After his meeting with Obama I have a sneaking suspicion that this may be the way things will slide. Notice that stock markets are heaving a sigh of “no change” relief.

It is too early to say but here are a few pointers to look for.

a) Continue Obamacare (with face-saving cosmetic brush-ups of course) since it is impossible to throw out 20 million or to withdraw pre-existing conditions cover.

b) Erect no tariff barriers against China, Mexico or anyone else. Some cosmetic hand-shaking of course.

c) “Renegotiate” NAFTA and pretend some fixes were made but no fundamental change; retain the Trans Pacific Partnership; take up the trade deal with Europe (TTIP) again under another name if necessary with small changes and call it “a diamond standard”.

d) No real change at all in foreign policy. Current framework to continue in Syria-Iraq, Tehran Nuclear Deal, South China Sea, N Korea, Japan Umbrella and NATO. (See also # below).

e) Forget about “millions of new jobs” and trillions in investment. (See also * below). Let employment and GDP grow at the Obama-rate.

f) Forget about cuts in welfare benefits; don’t touch abortion.

g) Promise to block visas for Muslims, even temporarily, will be ignored.

h) Forget about Mexico paying for the Wall if it is built at all.

i) Apologise to Latinos.

This is a to-watch list of 9 items; let us tick off as we go. It is too early to say how many will get ticked. When we reach 4 ticks we can say “it’s just continuation”.

# Relations with Putin will improve but will drive a hard bargain such as easing sanctions and lessening pressure (nuclear placements) in Ukraine and the three Baltic States. In exchange Putin will concede some face in Syria/Aleppo. The NATO allies and Japan will cough up a bit more money to save him face so long as it is small and cosmetic.

* He will have to do the tax cuts he promised. This promise is hard to avoid. But how will he recoup the losses? Cutting welfare and benefits will provoke a backlash on the streets and in the rust belt.