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GRISWOLD: Demise of Kodak, Sears and Borders illustrates ‘creative destruction’

- - Tuesday, January 10, 2012

ANALYSIS/OPINION:

What do these brand-name American companies have in common: Eastman Kodak, Penn Camera, Borders bookstores, Blockbuster Video, Sears and Kmart?

Every one of them either has gone out of business, has filed for bankruptcy or is about to file or is losing buckets of money every quarter, with the combined loss of tens of thousands of jobs. And not one of them can blame international trade for its woes.

Critics of free trade blame "unfair" foreign competition for the supposed loss of American jobs. Yet the typical American worker is far more likely to lose his or her job for purely domestic reasons.

In recent days, rumors have been flying that the 131-year-old film and camera maker Eastman Kodak will be filing for Chapter 11 bankruptcy. The Rochester, N.Y., company once complained about competition from Fujifilm of Japan, but now it is being hammered by the proliferation of digital cameras. Film sales have plunged along with revenue. From a peak of nearly $30 a share in late 2007, its stock price has gone down to 50 cents, while the company has eliminated 40,000 jobs in the past decade.

Equally iconic Sears and its sister retailer Kmart suffered a dismal holiday season. Aging stores and stiff competition from more trendy or efficient rivals such as Kohl's, Target and Wal-Mart have steadily eroded Sears Holding Corp.'s market share. It announced earlier this month that it would be closing more than 100 stores and laying off thousands more workers.

The Borders bookstore near my home in Northern Virginia, where just four years ago my daughter was serving coffee and stocking shelves, is closed. The local Blockbuster video and Tower Records stores are gone, too - all victims of online shopping, e-books, video streaming and iTunes. The local retailer Penn Camera just filed for Chapter 11 protection, pounded by the same forces that are about to claim Kodak.

Just last week, I heard from a former editor that the Colorado daily newspaper where I worked two decades ago has laid off more newsroom staff. The news had nothing to do with China or the North American Free Trade Agreement and everything to do with the preference of young readers for the Internet over a morning paper.

Economist and political scientist Joseph Schumpeter called it "creative destruction." It doesn't feel like it to the workers who have lost their jobs or the shareholders who have lost their investment, but this is progress.

The assets owned by those companies - the machines, the real estate, the patents - are being released for better use by new owners. Film, videos, CDs, DVDs, envelopes and stamps, heavy books, dank stores and piles of old newspapers are giving way to smartphones, Kindles, iPads, emails and Facebook, on-demand video streaming, brighter stores with lower prices, and colorful websites updated instantly with the latest news.

Who in his right mind would want to "protect" us from this transition in the name of saving jobs? Yet that is what the protectionists seek to do by opposing new trade agreements and proposing new trade barriers.

Like technology, trade blesses Americans with new and better products at lower prices. While trade eliminates some jobs, it creates others - typically well-paying jobs in competitive export industries that play to our strengths as a nation. In my book "Mad About Trade," I calculate that trade accounts for a mere 3 percent of annual job displacement in the United States. Technology, domestic competition, changing consumer tastes and the business cycle account for the other 97 percent.

In a letter to the New York Times last week, Sen. Bernard Sanders, Vermont independent, claimed that the United States has "lost millions of well-paying manufacturing jobs as a result of unfettered free trade." In truth, most of those lost jobs have been claimed by labor-saving machinery and new products.

Those Kodak workers didn't lose their jobs because of unfettered trade but because of unfettered technology.

Daniel Griswold is president of the National Association of Foreign-Trade Zones and the author of the 2009 book "Mad About Trade: Why Main Street America Should Embrace Globalization."