Can U.S. Workers Compete? Yes, if a Global Middle Class Rises

President Obama laid out a compelling vision for rebuilding the middle class yesterday, but he largely sidestepped the all-important question of whether U.S. workers can compete, long-term, with lower paid workers in places like China, India, and Mexico. 

As I've noted here often, foreign workers in developing countries aren't just competing for U.S. manufacturing jobs, they are increasingly taking white-collar jobs, too. Radiologists in Mumbai analyze images for U.S. hospitals. Writers in Manila crank out content for digital media companies. And overseas engineers and developers are handling a vast array of tasks for U.S. corporations. Some companies, like Apple and Microsoft, are moving portions of their research and development to new overseas labs. 

Obama spoke hopefully about how more Hondas are built in America than anywhere else, how U.S. manufacturing jobs are on the rise, and how more U.S. companies are "in-sourcing." 

The President is right that all is not lost. But the larger trends point to an ever better educated overseas labor force competing for an ever wider array of U.S. service and knowledge jobs. Meanwhile, the recent uptick in U.S. manufacturing hasn't come close to offsetting the massive job losses of the past 15 years that have occurred as the Chinese industrial juggernaut got up and running. Nearly 3 million U.S. jobs were lost to China in the first decade of the 21st century, according to Economic Policy Institute. And as Pat Buchannan has pointed out:

From December 2000 to December 2010, 22 states lost a third or more of their manufacturing jobs. Massachusetts, New York and Ohio lost 38 percent of their manufacturing jobs, New Jersey 39 percent, North Carolina 42 percent, Rhode Island 44 percent, Michigan 48 percent.

Sorry, but a spike in Honda production and a sprinkling of "in-sourcing" is not going to reverse this economic catastrophe. And with China engaged in a massive push to move 250 million peasants to its cites, this competitor isn't going away. 

All of which brings me to the big idea Obama didn't mention in his speech: To secure America's middle class in a global economy, the U.S. needs to fan the rise of middle classes in the developing world -- and thus create a more level playing field where U.S. workers can compete. 

Industrialization tends to have clear arc: first come the sweatshops and the Robber Barons, with a harsh capitalism that exploits labor, coopts the state, and concentrates wealth. But over time, prosperity tends to get spread around and a new middle class rises. Labor unions are key, since they have the clout to demand a bigger share of the wealth pie and transform bad sweatshop jobs into good jobs with decent pay and benefits. 

Once a middle class gets firmly established, it tends to demand other things: like stronger social insurance systems, tougher environmental laws, improved transporation systems, better housing and healthcare options, more parks, better schools, and so on. The net result is more regulation, a bigger state, and higher taxes. Conservatives hate this stuff, but it's foundation of middle class societies worldwide.

Once a country has higher living standards -- and the costs that go with such standards -- it loses much of its competitive advantage in the global economy, which is great news for American workers. Not only that, but a country with a big middle class becomes a great market for U.S. exports -- both of goods and services. Such countries are also more likely to be democratic and less likely to emerge as military rivals. 

So one of the most important questions that U.S. leaders should be asking is this: How can America and other rich nations accelerate the rise of a global middle class? How can we push China, India, Mexico, Brazil, Indonesia, Vietnam, and other countries to more rapidly expand the circle of prosperity and raise living standards? 

There is no single answer to this question, and development is often held back by corruption and entrenched power arrangements. But one strategy is obvious: The U.S. and its allies should do everything possible to raise global labor standards and foster strong, independent labor unions. Organized labor helped build the middle class in the U.S. and Europe; it can play that same role elsewhere. 

Demos released a blueprint for raising global labor standards a few years ago, which you can read here. 

President Obama is set to give a number of additional speeches about building the U.S. middle class. Let's hope he has something to say about building the global middle class, too.