Washington state has to play the add-value card, not low-cost-leader ace

Being a "world-class city" means not fretting too much about that world of cheap, abundant labor — not just unskilled workers south of the border but also Chinese and Indian engineers and software developers working for a fraction of their American counterparts.

Local companies such as Microsoft have been outsourcing and offshoring jobs for some time. Still, Boeing's decision to establish a second 787 production line in South Carolina was a "race to the bottom" on pay punch to the solar plexus of the Puget Sound region.

After all, South Carolina's new Boeing workers will make about $15 an hour compared with on average the $26 earned by veterans in the company's Washington-state factories. The pay differential cuts across all occupations. In 2008, Washington's median wage was $17.92 an hour, compared with $13.85 in South Carolina.

Southern states have used that advantage, as well as fewer worker protections, few unions and light environmental regulations to lure large numbers of manufacturing jobs from the Midwest and foreign automakers. Those states also have spent billions of dollars on incentives, such as cutting taxes and providing job training.

Yet, if you're of the race-to-the-bottom persuasion, the Southeast provides ammunition for the other side of this argument. Since the passage of NAFTA and China's entry into the World Trade Organization, the Carolinas have lost hundreds of thousands of jobs in textiles, apparel and furniture-making. Those jobs went to developing countries paying even less and lacking the relatively less-stringent worker and environmental protections of Southern states. No wonder South Carolina has the nation's fifth-worst unemployment rate.

It's not too far a stretch to imagine Boeing's next expansion to, say, Vietnam or Malaysia sites close to its big Asian customers.

Not everybody buys the idea that America and Washington state are destined to be net losers, of course. They point out the benefits of free trade: less-expensive products and American jobs in exporting industries.

Once the distortions of the dot-com crash were cleared away, Seattle went on to become a jobs magnet. From 2004 to 2008, Washington's job growth surpassed the national average (and that of South Carolina). Even Boeing emphasized that commercial airplanes and their design would remain headquartered in the Puget Sound region.

But it would be naive to ignore the warning signs. Of the many discontinuities that mark the Great Disruption, the emergence of 3 billion new competitors for American jobs is one of the most immediate and destabilizing.

Despite its continued concentration of high-paying industries, Washington workers are caught in the same downdraft that has been affecting Americans for at least 30 years: slowing growth of middle-class incomes, declining benefits and, through most of the 2000s, stagnant wages.

When the nation's median household income finally rose again in 2006, it was still $2,377 lower than it had been in 1999 — an unprecedented development in modern America. While globalization is one driver, so, too, is the shattering of the old social compact. Multinational companies that dominate so many industries and heavily control public policy in America have no loyalty to localities or even nations.

No wonder the long-held belief that the next generation will do better than its parents is in jeopardy.

Isabell Sawhill and Ron Haskins of the Brookings Institution make the point that men born in the 1960s earned more in the 1990s than their fathers' generation; today, men in their 30s bring in 12 percent less than their parents' generation achieved at the same age. Recent modest rises in family income is because of the large numbers of women that joined the work force.

"But," they add, "with so many families now having two earners, continued progress along this path will be difficult unless wages for both men and women rise more quickly."

These trends, often concealed by recent bubbles, will only grow stronger with the recession, weak recovery and a "reset" likely to be even more destabilizing.

This is the fix we're in. Boeing is a wake-up call. But so, too, are Microsoft's deeper-than-expected layoffs even as the company is announcing a new cloud-computing center to be built in Taiwan.

Unfortunately, the Puget Sound region can't win against pure cheap. It must create and add value. It's a technology center, competing against places such as Silicon Valley, Austin, Raleigh-Durham, Toronto and numerous other hubs worldwide. It's a port fighting to handle more of the world's cargo. It's a dynamo of high-end entrepreneurial activity.

Our most important benchmarks will be:

• Continuing to develop and lure top talent and highly educated workers.

• Creating the new ideas and products that will attract capital.

• Keeping the flow of research dollars.

• Improving K-12 education.

• Enhancing the high quality of life that all such leaders enjoy.

Now that we see the vulnerability of the aerospace cluster, how do we leverage this asset for a less Boeing-centric future?

One critical intangible to success is maintaining the dynamic reinvention that made sure Seattle wasn't left behind after each bust in the economy in the past.

Even all this may not guarantee that the Puget Sound area continues to outperform as it has in the past. Too much is in play with the Great Disruption. But it's the only hand we have to play.

Unfortunately, I'm not hearing a call to action, particularly from political leaders. We're cutting university funding; China isn't. The mayoral election centered on a tunnel that was going to happen anyway, rather than taking a hard look at the best practices of our high-performance peers. Gov. Chris Gregoire has yet to show that she realizes how much the game has changed, that prosperity won't automatically come our way.

We may not be in a race to the bottom. Maybe it's to the middle — but that could still mean a painful ride down for most Americans. The destiny yet to be written is whether the Seattle area lets itself be dragged along, too.

You may reach Jon Talton at jtalton@seattletimes.com