Tailored Clothes, Typewriters and Buggy Whips

A news headline today from the Associated Press reported that the company that owns the iconic American tailored clothing brands of Hickey Freeman and Hart Schaffner Marx (HMX Acquisiton Corp) is  is filing for Chapter 11 bankruptcy protection.  As reported by the AP:

The labels Hickey Freeman and Hart Schaffner Marx got their start in 1887 in Chicago and have been worn by presidents including Barack Obama, who wore its suits for his inaugural and election nights.  Their original parent company, Hartmarx, filed for bankruptcy in 2009 and was acquired by British company Emerisque Brands and the North American branch of Indian clothing company SKNL.

The tailored clothing industry in America employs slightly more people than the extinct typewriter and buggy whip industries.  Jobs in the manufacture of men’s and boy’s clothing have been either outsourced or replaced by mechanization.  Employment in men’s and boy’s clothing has declined from 459,000 in 1965 to 234,000 in 1990 to 29,000 today.  The US lost 93.7% of the jobs in the manufacture of men’s clothing at a time when total employment in the economy increased by 120%.

The US doesn’t produce (or consume) the same goods as it did a generation ago.  The US economy must continually transform itself, because of competition in a global economy and the mechanization of production, to generate enough economic growth to create jobs.  The changes required to keep up with foreign competitors will be the result of innovation, risk-taking, and investment in human capital.

President Obama was probably correct when he admitted in this week’s debate that some manufacturing jobs are gone from the US for good.  Outsourcing of these jobs makes economic sense if foreign competitors are more efficient and pass on their lower costs to US customers.  However, outsourcing of jobs is harmful for the US economy if it occurs because of stifling taxes and regulatory burdens.

Sugar Beets and Lockouts

Yesterday’s New York Times describes how lockouts have become a more common tool in labor management negotiations. Management is more likely than ever to lockout union workers, hire replacement workers and pressure unions to accept wage and benefit concessions when contract re-negotiations become deadlocked.

The Times article focuses on American Crystal Sugar, the nation’s largest sugar beet processor, which is currently involved in a lockout with 1300 union workers employed at five plants. The article never mentions that profits and union compensation in the sugar beet industry rely on import tariffs, quotas on imported sugar, and protection from foreign competition.

It is simply cheaper and more efficient to import sugar than it is to process sugar from sugar beets in the US. As Mark Perry noted in his Carpe Diem blog two years ago, government intervention in the market for imported sugar has protected the sugar beet industry and raised the price of sugar for the American consumer. The sugar beet industry has received $242 million in subsidies over the past 15 years.  More importantly, as Perry explains, our policies have caused U.S. sugar prices to be about twice the world price for decades. In 2009 alone this cost consumers $2.5 billion dollars.

Remarkably, the topic of sugar subsidies was raised yesterday at the Republican debate. Newt Gingrich admitted that in all of his years in the House he was unable to eliminate sugar subsidies. His simple explanation for the durability of this anti-competitive policy was there are “just too many beet sugar districts in the United States.” This debate topic released a torrent of cynical (but funny) tweets . The consensus was: this is silly, aren’t there more important issues?

The story of sugar beets is a lesson in why inefficient government programs are difficult to eliminate. Every policy has winners and losers. The winners are the sugar beet processors and organized labor who are currently deadlocked over how to split the profits from operating in a market protected from foreign competition. The losers are American consumers. Unfortunately the stakes are so low per consumer, $8 per year, that we think it’s silly to question candidates about how they expect to change Washington if they can’t stop subsidizing and protecting sugar beets.