The Lure of Protectionism in Ohio

Ohio, part of the country’s Rust Belt, was a swing state in the 2004 US presidential election, and the state’s voters will play a big role deciding the 2008 Democratic nominee and probably the next president of the United States. Their choice might set the US agenda for global economy. As one of the country’s leading manufacturing states, Ohio suffers as companies shift factory jobs to low-wage countries. Protectionist policies, urging withdrawal from intense international competition, tempt voters worried about job security. But voters have heard such promises before, including those from the 29th president who happened to come from Ohio. Warren Harding, described by historians as a failure, appealed to a country weary of the First World War and economic problems: “America’s present need is... not experiment but equipoise; not submergence in internationality but sustainment in triumphant nationality.” A look at Ohio’s current economy and the evolution of the television-manufacturing industry reveals why politicians can’t afford to frame globalization as the responsibility of employers or government, to be resolved by pat protectionist policies providing temporary relief. Instead, politicians must encourage consumers to evaluate their spending habits and guide communities toward innovation and international openness as pathways for success. – YaleGlobal

The Lure of Protectionism in Ohio

Shutting the door on trade may seem easy way to protect market share, but openness and innovation would be more effective
Susan Froetschel, Morgan Robinson
Monday, March 3, 2008

Vision: A small company dominates the market by selling big-screen televisions and show that initiative can pay off

NEW HAVEN: The candidates for US president sense deepening anxiety over globalization among workers, blue and white collar alike. But too often, they frame globalization as a choice for employers or government, and not for consumers. The experience of a tiny TV manufacturer shows how an electorate’s inability to look at globalization in its totality risks taking the country in a wrong direction.

The Republicans are defensive about the US economy, and the Democrats argue for outright protectionism, joining globalization’s bitterest opponents in raising alarm about the erosion of the country’s manufacturing base and the loss of high-paid jobs. But the outrage vanishes with economic-stimulus plans that start at the doorway to America’s shopping malls. Workers transform into shoppers and join a national hunt for bargains on clothes, electronics and home décor, all made possible by laborers, largely in Asia, working long hours for a few dollars a day.

The next president, whoever he or she may be, must connect American consumers’ choices with their job prospects and their communities’ economic potential. Ohio, one of the worst-hit among industrial-belt states, offers a glimpse into the quandary awaiting any politician who adopts a protectionist stance. A fierce protectionist message resonates in a state with a 5.6 percent 2007 unemployment rate, among the highest in the nation. Between 2001 and 2005, Ohio lost more than 800 plants, and companies like Maytag, Ford, Meridian Auto Systems and Delphi announced plant closures, eliminating thousands of jobs.

Ohio still ranks third in US manufacturing gross domestic product, but lost more than 200,000 manufacturing jobs since 2000 and is projected to lose almost 10 percent more by 2015, according to a report from Ohio’s Department of Job and Family Services.

Lambasting such harsh statistics is how Sherrod Brown won his US Senate seat in November 2006. Shortly after that victory, he offered his description of trade as a global race to the bottom: “Much of the world at the beginning of the 21st century looks a lot like the United States did 100 years ago: Workers are grossly underpaid, exploited and abused, and they have virtually no rights,” wrote Brown with North Dakota Senator Byron Dorgan in a Washington Post op-ed.

Yet consumers in struggling Ohio rarely connect their shopping selections with intense global competition that sweeps jobs to countries with the lowest wages and highest productivity. Take televisions for example. Ohio newspapers reported on shoppers who skipped Thanksgiving dinners last year to wait in line for state-of-the-art televisions. By 5 am the next day, lines of shoppers, some numbering in the thousands, snaked outside Circuit City, Best Buy, Wal-Mart and other stores in Toledo, Cincinnati and Cleveland.

Innovation – by way of large, lightweight screens and sharp images – and low costs drive the technology race on televisions and consumer desire. Savings from the global supply chain pushed companies to relocate their manufacturing away from states like Indiana and Ohio, to contract with suppliers from low-cost foreign markets.

In a few decades, the manufacturing process for televisions transformed – moving from a single design, manufactured in a plant close to home, to a set of components built in thousands of factories all over the globe, then gathered and quickly assembled like kits. Firms in Bangladesh, Vietnam, China, Taiwan, South Korea and other Asian nations now jockey to cut costs on parts.

Trade unions noticed the television manufacturing’s rapid shift from developed nations to less developed ones: “In 2000, Americans bought 210,000 color televisions made in China and Malaysia,” reported the IBEW Journal. “By 2002, they had purchased 2.7 million, more than a 10-fold increase.” By 2003, only one US television producer was not owned by a foreign parent, according to the Consumer Electronics Association.

No one, however, should count out the US competition. In 2002, an entrepreneur-engineer-immigrant set out to create a large flat-screen TV that cost less than $3000, at a time when prices hovered around $10,000, reported the Los Angeles Times. William Wang’s tiny firm, Vizio, purchases components from Asia’s unrelenting competitors. Based in Irvine, California, with 90 employees, the firm outsells Asian giants Samsung, Sharp and Sony in North America when it comes to LCD models.

Screens are the most expensive part in any high-tech television set, and those now supplied from abroad originally emerged from US defense research. In 1968, engineer George H. Heilmeier led a Radio Corporation of America group in developing the first working LCD screens. Not long afterward he directed US Department of Defense research in electronics, computer technology and the physical sciences.

But US television manufacturers didn’t keep up with the innovation. The last RCA plant in Ohio, based in Circleville, focused on less sophisticated cathode-ray tube technology and was closed by its French parent, Thomson Electronics, in March 2004.

Some Ohioans recognize that their state is being left behind and that protectionism is not the answer. In the midst of the busy holiday shopping season, Circleville leaders hosted a summit with Honda representatives to learn what foreign companies search for in communities when choosing sites for manufacturing plants.

Honda looks for an educated work force, reported the Circleville Herald, graduation rates, proximity of colleges and vocational schools for training a work force as well as involvement with international organizations.

But with 23 percent of its adults holding a college degree, Ohio ranks only 38th among the 50 states. Less than 10 percent of Ohio residents hold advanced degrees.

Patent growth, an indicator of innovation, is slipping in both Ohio and the country as a whole, according to a Ewing Marion Kauffman Foundation report. The state slipped from 13th place in 1998 to 18th in 2006 among the 50 states in producing global patents, protected in multiple countries under the Patent Cooperation Treaty.

Meanwhile, as the fourth largest industrial energy user in the country, Ohio suffers with every increase in the price of oil. Governor Ted Strickland, elected in November 2006, set out a detailed energy plan to encourage development of alternative sources. “Energy can be a catalyst for new jobs, bringing forth a new day, a new economy, a new Ohio,” Strickland said, announcing the plan. Indeed, no amount of protectionism will lower the price of oil.

Neither governments nor consumers can afford a mindless quest for bargains and instead must think about the consequences of any purchase – for example, investing more in education rather than entertainment, in cars and appliances that conserve rather than waste energy. Untangling globalization’s many connections and plucking away the foreign strands won’t diminish economic woes.

Ohio, a swing state in the 2004 election, could be crucial again.“More than a third of the state's voting-age population consists of whites over 45 without a college education,” wrote William F. Frey for the Brookings Institution.. “For these voters, in the current climate, economic issues loom large.”

Protectionist messages may appeal to anxious voters. Facts on the ground, though, suggest that such policies could be disasterous for Ohio. Ohio firms ship products to 205 different countries. The state is headquarters for 38 Fortune 500 companies, many multinationals that do business in other countries. Companies like Proctor and Gamble increasingly earn more revenue from sales overseas than from domestic sales. Communities must court foreign companies such as Honda, which employs 16,000 Ohio residents, making it one of the 15 largest employers in the state.

The next president must be frank with the American people, convincing them to invest in the hard work of education and innovation rather than simply construct protectionist walls.

Morgan Robinson is a history major at Yale University, and Susan Froetschel is assistant editor of YaleGlobal Online.

© 2008 Yale Center for the Study of Globalization