MIT Economist Talks Globalization, Trade and China

CHRISTIANE AMANPOUR: Our next guest is the MIT professor David Autor. He’s a leading economist studying disruptions to labor markets from globalization to trade and, as it turns out, viruses. “The Economist” calls Autor the academic voice of the American worker. He talks with our Walter Isaacson about U.S.-China trade relations and the long-term impact of the coronavirus.

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ISAACSON: Your academic studies for the past two decades have really focused to a large extent on globalization and even China having been brought in around 2000 or so into the global economy. How will the coronavirus disrupt this in the longer term?

DAVID AUTOR, FORD PROFESSOR OF ECONOMICS, MIT: Well, what the coronavirus phenomenon has reminded us, if we didn’t already know, is how tightly integrated the global economy is, both on the one hand through tourism, through travel, business travel, and all the routes of transmission, but also through supply chains that run very deep into Asia and throughout the world. And they’re highly, highly interconnected. And so a break in any link of that chain can have repercussions for, when will the next iPhone be introduced? How fast can we produce surgical masks? When will we start having shortages of pharmaceuticals? All those things are things we will feel. And this is something that has proceeded rapidly and deeply in a way that many people may not be as intimately aware. But when you think of Walmart’s business model, Walmart’s business model is not just trucking stuff out to big box stores. It’s developed supply chains into China to produce millions of goods at very low cost and getting them efficiently into U.S. stores.
So, Walmart’s business model will be interrupted — will be disrupted, to the degree that China’s production is disrupted. I think, more broadly, we have seen this is one of several shocks that have hit global supply chains in recent years. The Trump tariffs also had a very  large effect, both in terms of changing the costs of producing certain things in certain places, but also reminding businesses how vulnerable they were to disruptions in areas over which they have very little control. So, I don’t know what the long-run effect would be. And it’s premature to say, because we don’t know how transitory this will be. But I think it will make us aware of that vulnerability. And I think both businesses and individuals will take that into account in how they plan where they travel, but also how they plan what they produce.

ISAACSON: We’re in an era of amazing disruption, from Brexit to Trump to Bernie Sanders. Part of it seems to be due to trade and what that did to our middle-class, part of it to do with technology. How disruptive was trade, especially trade with China, to the American middle class?

AUTOR: It was quite consequential, much more than was expected by the people who were negotiating China’s joining the World Trade Organization, which it did in 2001. And, in net, it probably cost the U.S. a couple of million manufacturing jobs. And let me put that in context. The labor market, 150 million workers, so a couple million jobs is actually not that large relative to the whole. However, those jobs are geographically concentrated, right? They’re in the South Atlantic area. They will be in specific industries, like textiles, furniture, shoes and leather goods. And so relative to the whole U.S. economy, that’s small. Relative to the places where that impact was felt, it was extremely concentrated, extremely immediate, and it put companies and industries and towns kind of out of business very quickly.

ISAACSON: So, when it came to China and trade deals, did Trump — was he onto something? Did he get it right?

AUTOR: There are really two answers I’d like to give to that question. So the first is, looking back, Trump picked up correctly on how much economic and psychic damage had been done by the China shock, just how much that hurt in a way that economists and economic policy-makers hadn’t anticipated and in a way that politicians had not accounted for. So he correctly picked up that zeitgeist and channeled it. And I give him credit for that. He is also correct that the U.S.-China trade relationship was and is badly in need of renegotiation, but not in a way that’s going to bring back those jobs. That’s not going to happen. The real negotiation with China now has much more to do with frontier sectors, like microelectronics, aircraft, network routers, 5G, and with ownership of intellectual property and with market access. Those things are incredibly important.They aren’t going to undo the China shock.

ISAACSON: When we negotiate trade deals in the future, should we be looking just to maximize the GDP, or should we be saying, hey, trade deals should try to protect — I know protectionism is not a good word — but protect the jobs of Americans?

AUTOR: So I’d say there’s kind of a middle course to that. So change is necessary. It’s part of economic dynamism. It allows us to grow as a country. If we just said, look, we can’t have cars because it’s really going to hurt the horse industry, right, the equestrian sector, that would not have been a good choice. However, we ought to be thinking about the rate at which things change and the transition path between those things. So, the China shock happened really fast. When China joined the WTO, it was granted permanent most favored nation trading status in 2000. It joined the WTO in 2001. And there was a surge of imports. The U.S. trade deficit in merchandise goods rose to about 3 percent of GDP. And that made many labor-intensive industries, particularly in the South Central United States, kind of nonviable, right? So the commodity furniture industry, plants with 1,000 workers or more disappeared, textile production, leather goods, toys, assembly. And I think, in retrospect, if we had known it was going to happen like that, I think we would have done it more gradually. It’s not that we said, no, that could never happen. But we should make that transition path less traumatic, and we should have supports in place for  workers making that transition as well.

ISAACSON: Do you think the disruptive effects of globalization and trade on average people who had good jobs is a global phenomenon that’s causing things from Brexit to Bernie Sanders to Donald Trump?

AUTOR: I think it’s one part of it. So,I mean, I would say there are two or three forces that are kind of contributing to the sense that we all perceive that people are reacting, reacting to how the world is changing, reacting somewhat vehemently at the polls. One, of course, as we have discussed, is trade and global integration. A second is that technological change itself over the last 40 years has had very non-neutral effects on the labor market. It’s been highly complementary to professional and technical and managerial workers who have cheap information, larger locus of control, better communications, made them more productive. It has simultaneously substituted for a lot of workers doing office, clerical, admin work and production and operative positions, a lot of the skilled, but well — skilled, but kind of scripted work, things that followed a well-understood set of procedures and rules, often which required education, expertise, and practice, right? Those are increasingly automatable. What is left behind, in addition to these professional and technical managerial jobs, is many in-person services, food service, cleaning, security, home health–

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ISAACSON: You mean, in other words, those jobs still exist?

AUTOR: Those jobs still exist. However, those jobs don’t pay as well. And the reason they don’t pay as well is not because of class structure or prejudice. It’s because they use a relatively generic skill set that many, many people have. And there are jobs in which you don’t typically develop expertise and become much more productive. If you’re a janitor, or you’re a checkout clerk, or a hotel clerk, you will probably reach peak productivity at that that job in a few months. And then that means that you won’t have a rising life cycle of rising wages if your productivity isn’t rising. It also means that you’re in kind of neck-and-neck competition with the next person who applies for your job. That wouldn’t be true if you were getting better some skilled production tasks or learning an expertise at clerical work. So the labor market has bifurcated. Many of these middle-skilled jobs have been hollowed out by a combination of technology and by trade more recently. We have this kind of polarized labor market, lots of opportunity for the highly educated and a narrower set of opportunities for people without college degrees.

ISAACSON: Has there ever been a time in our history in which technology has reduced the number of jobs?

AUTOR: And that’s a very good question. And I should mention I’m one of the co-directors of the MIT Work of the Future task force. It was set up by president Reif of MIT to look at this question about technology and employment and, what is changing, what are the challenges, what are the opportunities, and what are the policies that attempt to respond to that? There is a long history of the fear of technologically-induced joblessness. So far, we have seen very little of that. Most technological advances have led to productivity growth, income growth and rising opportunity. But just like trade, they don’t make everybody better off. And that is a very legitimate concern. You know, the most famous  example of the people concerned about the technological progress were the Luddites in 18th century England, and rose up against the power loom or mechanical frame — power frame — excuse me. And although they were — if they believed it would eliminate employment altogether, they weren’t correct. But if they thought it would threaten their livelihoods they were right, because the Industrial Revolution devalued artisanal skills, the people who worked at home doing careful handicrafts, and moved them into factories, where a lot of the work was done by less skilled, less trained individuals, often children, working with big machines. And so it had hugely redistributive consequences. And out in the present era, there’s no reason to think that we’re approaching technological unemployment. In fact, you can look around you and see we are in a jobs boom. And that’s true throughout the Western world. Wages are rising. Unemployment is low. And, moreover, demographically, we face great challenges because of low fertility, an aging population, restrictive immigration policies, and rising education, which makes people less interested in doing many of the service jobs that need to be done. So it’s not a question of the quantity of jobs, but the quality of jobs. And that has changed a lot. And technology has a lot to do with it. And this bifurcation of opportunity is a very substantial factor in people’s perception of opportunity and security vs. economic dead ends, and the notion that the assumptions on which they had structured their working lives are threatened. It’s not clear where the equivalent opportunity is anymore for people without a college degree.

ISAACSON: But if we just do more education, more skills, more community colleges, we will create a better work force, but is that going to solve it all? Or do we have to also have a supply of jobs for those people?

AUTOR: I think you ask a very astute question. There’s a kind of — it’s the easiest thing in the world to say, oh, more education skills, that will do it, supply-side intervention. And that’s certainly necessary, but it is not sufficient. We need to do more that changes the structure of work. So what would that look like? One is tax policy. Our tax policy heavily subsidizes investment in machines, relative to workers. So a firm might be saying, well, I could do this thing — I spend — I could spend a million dollars a year on labor or I could spend a million dollars a year in renting this piece of capital to do the checkout or do the airline reservations. What should I do? Well, it’s kind of a wash. Oh, look, the tax system is going to go in with me 20 percent on the machine, but it’s going to tax me on the workers. I think I will use the machine. And so we may actually create excessive automation through our tax code. That is something that my colleague Daron Acemoglu and his co-author Pascual Restrepo at Boston University are working very hard on, fascinating paper on this topic. Additionally, the U.S. is an extreme among market economies in venerating shareholders as the only legitimate stakeholder of companies. There was a time not long ago when it was thought that a firm was there to maximize the wealth of its shareholders, but also the welfare of its workers, and had some responsibility as well to the community in which was located. Milton Friedman in 1950 said, oh, that’s crazy. What companies should do is maximize profits. Anything else is actually a waste. They’re harming themselves and harming society. That view was extreme. It was not accepted until the early 1980s. And then it basically took over. It became intellectually acceptable. And at the same time, labor unions atrophied, partly because of globalization, partly because of changes in the way that firms bargained with them. Now, we are in a setting where firms have kind of very few constraints to do anything other than maximization of shareholder value. I’m not saying they make short-term bad decisions because of that. I’m saying they’re making decisions that don’t place much weight on the welfare of workers, especially the rank-and-file workers. I don’t think firms are heartless. I think they — people are sentimental, but the market pushes them in one direction. And if you don’t have a countervailing force to any degree, that will lead to outcomes that are profit-maximizing for firms, but arguably socially suboptimal.

ISAACSON: What do you make of the phenomenon of temp work, Uber-type gig economy jobs? Is that good for the economy?

AUTOR: There are some really important benefits, let me start off by saying. The problem with many service sector jobs, we know retail, food service, so on, is you often work at hours you don’t want to work, and you can’t work at hours that you do want to work. Well, this turns that on its head, so that’s a very good thing. However, of course, we — traditional employer direct-hire employment has lots of structure, lots of protection, lots of guaranteed benefits. It has Social Security payments. It will have pension payments, health care payments, all kinds of good things that go along with it. As soon as you’re outside of that traditional employment relationship, there are very few protections for the worker, very few strictures. And workers may not even be aware of what bargaining they’re getting into. Are they insured when they’re driving? If they have an accident or the passenger damages their car, opens the door and gets hit by another car, are they insured? They may not know until they discover that, in fact, they are not. In fact, the ways Uber and Lyft are now — have argued themselves legally, they’re not — they’re no longer — they don’t — not only are they not employers of those of drivers. They’re not even — those drivers are not even contractors in the traditional sense. It’s like they’re running dating apps. It’s like you and I would like — I would like a ride and you would like to drive? Can we go on a date? Let’s use Uber and Lyft. And so it completely disintermediates the traditional relationship. So I think it provides opportunity, but also moves risks onto workers in a way that they may not be aware of, and, moreover, will erode other forms additional work, right? So we know hotel room service is in decline because of Uber Eats. We know many of the things that would potentially be done through direct-hire relationships will increasingly be done through app-based services. So it’s not altogether bad. But we need to find an employment model that is not so binary. Either you’re a direct-hire worker, and you have lost protections, or you’re not a direct-hire worker, all bets are off, Wild West, employer — the company does whatever it wants. So I think that is the concern.

ISAACSON: When you were young, before you were an academic, you taught computers to disadvantaged kids out in California. How did that affect your thinking on the role of technology in the work force?

AUTOR: It was formative for me. I saw the tools required in the workplace changing very rapidly. And I saw that — how hard they were to access both for — one, for people who didn’t have the incomes to buy a computer to give that to their kids to get the education, and, two, for people who didn’t already have high levels of literacy and numeracy, because many of these stories depend upon you’re good at reading, you’re good at math, and you can use the tool for programming, you can use the tool for writing, and you can use the tool for design. But that kind of builds on foundational skills. And so my concern in that time that was really the genesis of the program to which I — at which I worked was that there was a kind of a digital divide growing. Now, what I think — and that is really what sent me to graduate school, to study that. What I have learned over time is the digital divide is not access to a computer, per se. It’s the way that automation, computerization has devalued a lot of middle education, middle employment skills by taking them over, by accomplishing them with software, and, therefore, kind of making work more interesting, more creative, more remunerative for people who have abstract skills, interpersonal skills, professional skills, and making work narrower and less skilled and less expert for people who don’t have those opportunities. And I feel that is a big cost, not something we can fix directly, but something we have to fix by investing in skills, sure, but also by changing  incentives, changing incentives for making workers more productive, for recognizing their value, and for using technologies that make them more productive.

ISAACSON: Professor Autor, thank you, and good night.

AUTOR: Thank you very much.