I’ve never attended business school or even sat in on a class. But last week, I got some sense of what I’ve been missing when The New York Times op-ed page ran a guest column by Wharton School professor and former CEO of the investment firm PIMCO Mohamed El-Erian, who teaches a course there on what he calls geoeconomics.
As El-Erian describes it, geoeconomics is the wave of the future. It will require “economists, investors and traders,” he writes, “to update what they have learned from textbooks and the past few decades.” When you read the entire piece, you realize that “update” is a euphemism. Further down in the piece, El-Erian becomes less dainty. “The laissez-faire capitalism championed by economists like Adam Smith and Milton Friedman,” he writes, “will face a much heavier government hand.”
But even the words “will face” are euphemistic, El-Erian’s point is that they must face a heavier government hand, given 21st-century realities. The pandemic and the wars of the past decade make clear that America must onshore or reshore a great deal of the industrial output that our corporations, at the prodding of Wall Street, have offshored over the past 40 or so years, lest America’s cupboard be bare when we need it. His three key points are: “National economic capacity is critical to economic security,” “Trade and investment openness must be strictly reciprocated,” and “All of this must be aimed at visibly improving the welfare of American households.”
This is a message that America’s economic left can embrace. In fact, this magazine did embrace it in 2022 with our special issue on the broken U.S. supply chain and the need for stronger resiliency by ending the factors (monopolization, outsourcing, just-in-time logistics) that introduced this risk.
But at the same time, El-Erian notes that, “for households, the era of ultracheap imported goods will continue to give way to one with less emphasis on cost and more on supply chain resilience. Consumers, including already stressed low-income households, will face some higher prices as the decades-long prioritization of pure economic efficiency is scaled back.”
The problem is that El-Erian has really stated just half of what the left views as necessary and has fallen mute on the other half. If policy is to be aimed, as he writes, “at visibly improving the welfare of American households” even as these changes will compel those households to “face some higher prices,” then El-Erian’s circle can only be squared if these policy changes, which begin with tax rates and tariffs, also mandate higher wages and restoring the right to unionize.
But those policies, I guess, are the love that must not be spoken, at least in a column that alerts “economists, investors and traders” to these policy shifts but never once mentions “workers.” Whether this omission is a deliberate ploy to avoid panicking the bankers and CEOs to whom this column is all but explicitly addressed, or the bankers- and CEOs-to-be who matriculate at Wharton, I have no idea. But let’s tally these omissions.
First, in what we can gently term a display of tact, El-Erian does not explicitly condemn the C-suite occupants who devastated American industry by shipping production to low-wage China, and are currently trying to move it to the less threatening climes of even lower-wage Vietnam and India. Second, the movement to offshore wasn’t primarily concerned, as he writes even more euphemistically, with “economic efficiency”; rather, it was all about increasing profits by lowering labor costs. Third, there is nothing new about his argument. American unions have been making this case since the 1980s, and the economists at the Economic Policy Institute (EPI) went up against virtually the entire economics profession when they made this case in the early 1990s.
And their case wasn’t protectionist as such. Decades ago, a number of EPI staffers and associates laid out discrete wage standards (as a percentage of nations’ various outputs and living costs) that nations would have to meet to be America’s trading partners.
But pointing out that the representatives of and advocates for America’s workers have been resisting and opposing the hold that major investors have had over national economic policy for decades, and that it’s those investors who’ve sold America down the river, is something that El-Erian, whether consciously or unconsciously, decided was a bridge too far for his audience.
Moreover, he doesn’t point to the role that the American people have played in compelling the recent policy shifts, confining himself to simply noting those shifts: Biden’s industrial policy, Trump’s tariffs (and, again, ever tactfully, he doesn’t note that most of those tariffs derive from Trump’s belief that other nations haven’t groveled sufficiently before him). He doesn’t note that decades of polling never showed that a majority of the American people backed our specific trade agreements, and that Democrats like Ohio’s once-and-I-hope-future senator, Sherrod Brown, spent decades outlining the folly of countering Chinese mercantilism by investing in China. He doesn’t note that it’s the cumulative economic distress of voters that is at the root of factoring the national interest into economic policy. And he certainly doesn’t note that the new economic emphasis is in some sense a form of stakeholder capitalism, once you grant that “the United States” is a stakeholder.
Will the American public go for all of this if, indeed, it entails higher prices? That’s not for “economists, investors and traders” to decide. It’s not up to Wharton alumni. It will work only if workers’ incomes rise accordingly, as they have not since the policy shifts of Reaganism unleashed major investors to reshape policy in a way that hugely increased their own wealth at the expense of our wage earners and our national security. Rewriting the economic textbooks, as El-Erian advocates, is commendable, but woefully insufficient. A secure America requires genuine worker power.
