Adjustment, Part 2: Rethinking Adjustment Assistance

Show Notes

What Grant's been reading lately:

Open: The Story of Human Progress by Johan Norberg
The Rise and Decline of General Laws of Capitalism by Daron Acemoglu and James A. Robinson

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Transcript

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Jill O'Donnell: Welcome to Trade Matters, a podcast by the Yeutter Institute at the University of Nebraska-Lincoln. I’m Jill O'Donnell. Today’s episode is part 2 in our 2-part series on adjustment. We’re picking up from our conversation last week with Grant Aldonas, former Under Secretary of Commerce for International Trade. In the last episode, I asked Grant what we really mean by adjustment. Here’s his response: “…adjustment’s best understood as a response to economic change, and the economic change we’re facing now relates to a race between technology, on the one hand, and education and training, on the other.” In this episode, we discuss trade adjustment assistance, first created in 1962, and how to re-think it for a new era of global economic competition.

Trade Adjustment Assistance for our listeners to remind them was authorized back in 1962. So it's been around a while, and it's effectively acknowledging that maybe some workers would be hurt by more trade liberalization. So it was an attempt to help those who might be hurt by trade as the country was opening up more and liberalizing trade. So there's TAA for workers and TAA for firms. You oversaw TAA to firms I know when you served as Under Secretary for International Trade at the Department of Commerce.

But I want to start with TAA for workers for a moment. And just to give again, a little context to our listeners in terms of how far this program reaches, I looked up some statistics for fiscal year 2020, which showed 1,183 petitions were filed, and 770 of those were certified for TAA. And after that, about 96,000 workers were eligible to then apply for TAA under those certified petitions, because it's kind of a two-step process where a group has to apply. And then if that is certified, then an individual worker can then take the step to pursue TAA. Yes. So about 23,436 individuals were actually served under TAA in fiscal year 2020. So it just gives a sense of the scale. Of those, about half of them received some training through the program. And the latest report that I saw out of the Department of Labor noted that the employment rate of those who did complete training and received a credential as a result of that training were higher than those who did not, which continued a multi-year trends. So that suggests that some training is important for better outcomes here when going through TAA. So my question for you following this kind of recitation of stats is really a few here. So one is what about workers who lost their jobs for reasons other than trade? Like technology for example. Is it fair to have a program that focuses specifically on trade? Why is trade viewed differently, job loss from trade for example. Particularly when we've just talked about tax policy and how important that is in creating incentives for companies to do certain things. And then another question too would be you've given these numbers, and TAA is really an intensive program. There is case management for individuals who go through it. There's training opportunities. How easy would it be to scale this up if that were to be desired to help workers more hurt by trade? Because that is still a phrase that we hear a lot in the public discourse about trade. So several things to follow up on there. You can take them in any order that you would like.

Grant Aldonas: Well, the first thing is to say your question targets the critical point, Jill. Which is that most of the economic turn we're witnessing is broader than trade. Most of it's driven by technology. And there's nothing about the Trade Adjustment Assistance Program that addresses that challenge. So in other words, the program, and you're correct in saying that people who want to use it as an implicit critique of trade policy because somebody built a Trade Adjustment Assistance Program. Happy to go into why it was framed that way in 1962, which is not what critics of trade policy now pretend it is. But a true adjustment assistance program would address the broader challenge that workers actually confront. And to your point about scaling it up, it would involve two elements. The first would involve exactly what we were talking about in the context of tax policy. It would not involve government assistance, but it would involve changing those economic policies, particularly in the tax arena, that hinder the economic mobility of American workers.

Let me give you a personal example that I saw many times. If you are a worker and you're a candle maker, and you think this electricity thing is a passing fad, and you decide that you want to get a little more training in candle making, you can actually deduct that on your taxes. That's a way of ensuring you stay in your current job. Now if on the other hand, you think that maybe electricity is the coming thing, and you think lights might be around for awhile, and you decide you have to change jobs, there is no relief under the tax code for the training you might want to take even while you're still working as the candlemaker to move into a different role in our economy. You can't even amortize it, even though it is in fact an investment in your own human capital. So you've got the tax code telling you to stay in your job, even though you might realize that this is short-term and that things are going to change in a way that means you're going to have to move on. Now that's fundamentally a misdiagnosis of the problem and a misunderstanding of where adjustment assistance starts. It starts by aligning our broad economic policies in a way that fosters the mobility for which American workers are famous throughout the world. And that has actually slowed down in the last couple of decades. In part because of the economic policies we have, but that's not an adjustment assistance program like TAA if you catch my drift. That really is trying to say how harmful are the policies that we have in place now to fostering the ability of American workers to move with the wave, to surf the wave that they see in front of them rather than to have it wash over them?

The second element really is programmatic. And it would involve a broader adjustment assistance program than the focused one that we have now. It would not focus simply on training, as important as that is. But on assisting workers into new employment, through programs that have been widely used in other countries. Germany being the most prominent example in using government assistance to support apprenticeships. And the reason for that shift and focus of the program is the fact that as you and I both know from our own experience, most technical skills are job related. They are specific to certain jobs. Training in the abstract is very useful, but most of the learning we do is in fact on the job. So what that suggests is really a need to focus on what people need to get back to work rather than 'inviting them' to take two years away from work and engage in the sort of training that the TAA program currently provides. So it's a much more practical focus, even though it would have a broader scope. It really is designed to help again with the problem of mobility and upward mobility than it is to say we're just trying to get you a little assistance to do some training for two years, and then you're on your own.

Jill O'Donnell: So you may be anticipating this, but I wanted to ask you too, if you could just rebuild TAA for workers today from scratch from the ground up, what would it look like? It sounds like you've already hinted at some elements, but how would you answer that directly?

Grant Aldonas: The basic thing is to quit thinking of this as Trade Adjustment Assistance. I wouldn't even think of it as adjustment assistance or transition assistance. I would think of it as terms of a program is designed to encourage and foster economic mobility. Because we're far better if we put workers on a course to be thinking about their future in a way that involves change than one that just leaves them static until the change comes. And this is a very broad scope, Jill, so forgive me. But when you think about our education, we're having debates about all things in public education today. One thing we never do is connect the market to public education. Teachers oppose it, businesses are too busy. But the missing element is to make sure that people understand enough about where the economy is and where they fit in the economy, where they fit in their local economy and how that relates to the national economy and the global economy, that helps them make the connections and then creates an incentive for them to get the kind of tools in their hands that they need to work not just now, but in the future. So there's a very broad change in direction that has to start with a program for economic mobility. Then there's the technical aspects of it, which I just mentioned in terms of saying what kind of incentives can we create for people to be reemployed as quickly as possible? Here's an example. And it's not a TAA program example necessarily, but it's one that would again go back to the tax code. Probably didn't know that there's limits on what you can deduct for commuting to your job. Well, if we just loosen that a little bit, it's surprising how many more economic opportunities are available to workers in their local or regional economy without having to move that would actually be encouraged by broadening the scope of that tax deduction. So there's simple, basic things that fall into that category of realigning or economic policies that would work. Lastly, the program itself really has to be redesigned to focus on getting people back to work. Again, that's where we learn. And because that's where we learn, that's where we should focus.

Jill O'Donnell: So TAA as you know is going to expire at the end of this month, not too far from now. By July 1st, it will have expired and revert back to a much more restrictive set of eligibility and benefit provisions. Do you see any appetite for renewing TAA and perhaps having this large-scale conversation that it seems that you are suggesting would be needed to completely rethink how this is done, how adjustment assistance is given to people, and how these programs are designed? Do you see any glimmers of hope that there might be this type of conversation taking place as TAA is about to expire?

Grant Aldonas: I see none, sadly Jill. Again, going back to a point I know you've made and certainly I made earlier in the conversation, the Biden's administrations worker-centric trade policy really looks an awful lot like Donald Trump's trade policy, which there was no talk of Trade Adjustment Assistance, much less a broader look that would encourage American workers to use their freedom to actually move with the market. I don't see any appetite among Democrats to move away from the approach that the president has outlined, given the nature of relations between Democrats on the hill and the folks downtown. In any administration, not just the Biden administration. More powerfully, I don't see any new ideas coming out of the Republican side either that would create a new opportunity for the Republican Party honestly to embrace how we should structure our economy and our government in a way that fosters the mobility that workers in a free society and in a free economy and open market economy really have to have. But I don't see that interest or energy. And this goes back to an earlier point you made Jill, which was that in the context of TAA, you have to recall that this was a part of the Trade Expansion Act of 1962. And at the time, it wasn't recognized that trade hurt all workers as people frame it today. The reality was it was understood that workers had been protected in specific industries where tariffs might go down. And it was that limited problem that TAA was designed to tackle. Now you can see how far we've moved in terms of our views of trade policy and its workers. And there's reasons for that politically. But more powerfully, you can also see through that example why TAA has such a limited purchase on the problem. So while we need the broader debate, I don't see anybody doing any of the thing than treating TAA as Democrats have, which is a stalking horse for a protectionist trade policy. Whereas Republicans have, which is simply a pay for getting trade liberalization by passing a new trade agreement. Neither of which is adequate in confronting the challenges that American workers actually face.

Jill O'Donnell: So what about Trade Adjustment Assistance for firms? Which I think is less well-known. I don't think that really makes headlines. I have not seen very much on that really anywhere. It's the TAA for workers that you hear a lot about. You ran TAA for firms at the Department of Commerce when you were there. And this program helps firms who can demonstrate that they have been harmed by import competition, they get technical assistance to develop business recovery plans. So it seems to make sense to work with a firm at the firm level when there are challenges a firm might be facing due to international competition. In the latest data that I've seen again, for context for our listeners show that 98 firms, U.S. firms were helped out of this program in 2018, which is the most recent data that I saw. So tell us just a little bit more about this one. Do you see any prospects here for injecting the elements of the conversation that you seem to suggest that we need to be talking about to help workers and think more broadly about competition and how to help workers and firms?

Grant Aldonas: Jill, if anything, the situation with TAA for firms is even worse than TAA for workers. But it's not for the reasons you might think. The truth is, and my friends who are involved in TAA for firms will recognize this because it's what I told them 20 years ago. But TAA for firms is one of the best examples of public choice theory I've ever seen in my life. It turns out that a cottage industry developed around managing treasures for firms, and they're the ones who benefit from it, not the firms. And it's not to say that you couldn't design a program that would be helpful to firms in encouraging adjustment. But you might be wiser to develop a program for communities and regions to think about adjustment that would help firms. So what you have now are folks who essentially represent an industry that siphons the money that goes into TAA for firms and funnels it to individual enterprises. When in fact, the challenge that even communities in which those firms operate might be the right level of intervention. So structurally, you have a program that benefits the people who are engaged in the process, but it doesn't do an awful lot for individual firms. But again, it misdiagnoses and doesn't address the fundamental challenge that many firms face. Which has much more to do with where they're located and how they connect to the rest of the economy. So I'm not a big fan of TAA for firms. That's something where again, I think we would be helped more by looking at the broader economic policies we have in place, and finding ways to direct those at the challenge that our firms face. Good example with both the right focus and then its misguided political career is the idea that we have of infrastructure right now going on in Washington. There's absolutely no doubt that better infrastructure would be a way of lowering the cost of participating in the U.S. economy, and therefore in the global economy. And we demonstrably need improvements in physical infrastructure. I'd go so far as to agree with many of the Democratic promoters of the idea that fostering our investments in human capital through education and training should be a part of infrastructure, because human capital is what counts in today's economy. But thinking about it from the point of view of the construct of trade adjustment for firms completely misses the point.

Jill O'Donnell: So, to sum this all up or drive us toward some concluding thoughts here from you, we've talked about a misdiagnosis of the problem. What do you think is the most important thing that would be needed in order to correctly diagnose the problem in some kind of meaningful way that can move at least conversations forward about how to rethink all of this?

Grant Aldonas: I think what we're missing honestly is a conversation about where America moves next. And that's broader than economics. This is going to sound a little odd, but I think it goes back to Franklin Roosevelt's inaugural address in 1941. He outlined four freedoms. One of which was, the third freedom, I think the first one was freedom of religion. Second one was freedom of speech. The third one was freedom from want, which reflected the times. We were still coming out of the depression at that point. But it went more broadly to the attitude of what the economy should deliver. The fourth freedom was the freedom from fear. Now at the time, Roosevelt was talking about this as a way of in an international context, of the freedom from fear of forces that would destroy liberty. Because what we were facing in the context of the rise of Hitler in Germany, and of course Japanese militarism. Which shortly thereafter brought us into the war. The point I would make is that freedom from fear is also a worthy goal to be practiced domestically. That freedom from fear means that we are encouraged to walk out our door and participate in our society and in our economy. And that particularly, let me be very blunt about this, that the fear a women faces when she walks out her door even in the neighborhood I live in is something I'll never experience. But unless we focus about how we make the opportunity available for her to participate, we've missed a worthy goal of what America should be doing at this stage. Now, there are things that we can do that would then facilitate the ability to participate in the economy. Some of those are strictures on things like harassment, stuff like that. But what is actually missing when we go back to the idea of Trade Adjustment Assistance is a rather thoroughgoing look as to what would make her have a better opportunity to engage in the economy when she does walk out the door. Right? So I think framing it in a way that lets people understand that what the government is doing broadly is to try first of all to create an economy in which opportunity is available. And secondly, to put them in a position where they have no fear of engaging in the economy and in our society is really the element. I know I'm getting deeply philosophical here Jill, and it's probably not what you expected in a discussion about Trade Adjustment Assistance. But if you asked me what we should be doing, it is that broader goal about freedom from fear and the ability of women, minorities, also old white men like me to participate in the economy and in our society, that today's challenge really requires.

Jill O'Donnell: Well, I'm not surprised at the philosophy Grant, because you always bring that in. Which I think is really helpful and energizing in terms of how to think about this more broadly. So thank you.

Grant Aldonas: It's particularly kind of you to say. Because most times when I talk about these issues, I feel like those two Muppets Statler and Waldorf in the balcony talking about in the Muppets show. That's my view of economic policy today, unfortunately.

Jill O'Donnell: So last question for you today in this podcast, and this is one that I ask every guest who's ever on the podcast, what are you reading lately? What is one thing you've read lately about trade or global commerce that's been really striking to you?

Grant Aldonas: Well oddly Jill, two come to mind. One is broad. One is narrowly focused. But they both relate to the underlying angst that people feel about where we are in the economy, the global economy, our national economy, our local economy. The first one is a book by Johan Norberg called "Open: The Story of Human Progress." And there, what's important I think is Norberg puts trade in its appropriate context is simply one element of an open economy and an open society. And the broader openness he describes is what has really been the engine behind America's greatness. So when I read the book, obviously with American eyes, part of what I was thinking is how do we make sure that because we have to drive the technological frontier outward to grow, and because our ability to drive the technological frontier outward depends on our openness to ideas, our openness to the movement of people, services and goods. How do we ensure that at the same time, the backlash that Norberg describes that inevitably comes from opening of a society, but driven by human fears, understand it, is something that we confront at the outset so that we all move together? So when I think about the book, I think about it as not just an explanation of what good economic policy should encourage, but actually a bit of a roadmap of how America is leading voice for an open society in a Karl Popper sense should be. Not only domestically. Again, keeping our own side of the street clean, but also what America's voice should mean in terms of the broader debate globally.

The second thing I would say as much more narrowly focused. I've been struck by the recent interest in Marx, particularly among younger people without any experience either in the debate about Marx or in some of the really horrific practices that governments engaged in trying to implement the idea of Marxism. And the article is won by two of my favorite academics. One is Daron Acemoglu, an economist at MIT, future Nobel Prize winner, and James Robinson, a political scientist at Harvard. And the article is entitled "The Rise and Decline of General Laws of Capitalism." What Marx was trying to do more as a philosopher than economist was actually articulate what the laws of capitalism were. And what that misunderstands is capitalism is an epithet. It's not actually a system. What you have is an economic practice that is very human of people engaging in trade. And they are specializing in what they do because that yields greater productivity and greater earnings. And that is not a system to be decried. It is one that we've been used. Native Americans traded between the Lakota and Dakota and the Arikara and Hidatsa in North Dakota. I mean, this is not something that's unique to the West or any of those sorts of things, Jill. But the important point is that Acemoglu and Robinson avoid the current politics associated with terms like socialism, in favor of a coherent explanation of why Marx's critique of economics and the search for those laws he claimed to have discovered was as wrong as his theory of revolutionary change was misguided. In the end, the authors vindicate the old adage which I've said to you, Jill, which is where Marx was right, there was nothing new. And where Marx offered something new, there was nothing right. That's wholly apart from the human misery Marxism caused in practice at the hands of Lenin, Trotsky, Stalin, Mao, Pol Pot. Today by President Xi in China when you think about his government policy toward Hong Kong or the Uighurs in Xinjiang. It really is something different and it is Acemoglu and Robinson doing what George Orwell said, which is our first responsibility and the responsibility of all honest men and women at times like this is to restate the obvious. And I know that's something I said a while back when you and I first met Jill. But they've done that. They have restated the obvious not only about what Marxism is, but a better way of looking at the challenge that Marx's critique pointed to, which are changes in society and the necessary improvements in our democracy that should come first. Because serving the interests of the average American is what our democracy is supposed to do. How we order incentives in the economy flows from putting that person first. And that is something that Acemoglu and Robinson talk about in terms of outlining how government institutions shape economic opportunity. And in some respects, sets the perfect opportunity or forum for the critique of policies like TAA. And more broadly, economic policies that currently are hindering the ability of American workers to surf that wave.

Jill O'Donnell: Wow. Grant, thank you. You've just added substantially to my summer reading list. These will both be on there. Thank you for bringing up two very different pieces.

Grant Aldonas: I don't know if I should say thank you or sorry at this point.

Jill O'Donnell: I'll say thank you. I'm always looking for good recommendations to help one learn more and think more deeply about all of this. So thank you. You've certainly done that. Grant, thank you so much for being on Trade Matters today. Really appreciate it.

Grant Aldonas: It was my pleasure and a good chance to rethink a lot of these issues Jill. So thank you so much.

Jill O'Donnell: Thank you.

 That's it for this episode of Trade Matters. Thanks for listening and a big thank you to Alex Voichoskie and Jacy Thoman for helping produce this podcast. Opinions expressed on Trade Matters are solely those of the guest or host and not the Yeutter Institute or University of Nebraska-Lincoln.