Why Democrats should back Obama on TPP

American unions rallied together for a show of power after years of losing members and political influence. They garnered enough Democratic votes to shoot down their own president, Barack Obama. Sunday's New York Times explained how this coalition came together. The feature pointed out that the unions threatened Democrats who voted for the bill with loss of funding and support. Money talks louder in politics than sound policy.

In advocating enthusiastically for the trade bill, President Obama was following in the footsteps of another Democratic president,Bill Clinton. Clinton's support for the 1990s trade bills, the North American Free Trade Agreement and General Agreement on Tariffs and Trade, helped launch a jobs boom in America. Obama wisely saw the opportunity to do the same for American workers in today's era with the Trans-Pacific Partnership.

Obama's efforts were to no avail.

President Barack Obama and Japanese Prime Minister Shinzo Abe on the White House South Lawn in Washington, April 28, 2015.
Jonathan Ernst | Reuters
President Barack Obama and Japanese Prime Minister Shinzo Abe on the White House South Lawn in Washington, April 28, 2015.

Ironically, the defeated bill provided retraining assistance for workers dislocated by the trade bill. Lawmakers had crafted this legislation specifically to help the workers represented by the unions working so actively to defeat it. A further irony is that free trade agreements are heavily weighted to America's advantage because they open up foreign markets – in this case, Asian markets – to American goods, which face substantial restrictions in the form of tariffs and other limitations on their marketing. In contrast, American markets are already wide open to foreign goods with few limitations other than agriculture.

There is no doubt that globalization of the workforce – a trend that is inevitable in today's global world – is putting downward pressure on wages. For decades, labor unions have been steadily losing members. Additionally the public has gained greater insight into how certain union agreements hamper productivity, such as in the automobile industry. If labor fails to effectively partner with management and together create value for consumers, both labor and management will lose their jobs.

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The reality of the trade bill's defeat means that more American manufacturers will be required by foreign governments to set up production and often research and development, thereby cutting production in the U.S. The trade bill would go a long way to alleviate that. As American companies expand globally, inevitably they add many more jobs here in the U.S. – engineering, manufacturing, marketing, finance, and management.

Former Ford CEO Alan Mulally directly addressed these issues shortly after taking over Ford in 2006. He saw that Ford, General Motors, and Chrysler were steadily losing market share for several decades and de-emphasizing cars (in favor of SUVs) because they were unprofitable and could not compete with German, Japanese, and Korean cars built in plants in the Southern states. He met with leaders of the United Automobile Workers and devised plans to bring jobs back to Detroit, based on lower starting wages for new workers with the goal of cost parity with plants in the Southern states. This plan worked. Ford's market share has grown dramatically, and its Midwest factories are flourishing.

A further reality is that many of today's workers will not be qualified for their positions by 2025 as increased technology is changing their job requirements. The only solution to this challenge is to retrain American workers for the jobs of the future. This is what Germany does so well through its apprenticeship programs and other worker training. And it explains how German manufacturers have grown so much in the era of globalization. Their quality and design expertise enable them to expand their export sales worldwide.

A natural compromise is to combine a worker retraining bill – something Democrats favor – with the trade authority President Obama seeks.

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It's time for both sides to come to their senses and support the president on this bill – both the free trade agreement and the worker retraining. If lawmakers don't get this done, China will proceed to form its own coalition of nations willing to agree to free trade among themselves, and American companies and their workers will find themselves shut out of exporting to Asian markets. In this case, American workers will be the big losers as U.S.-based global companies will be forced to move more jobs overseas.

And the Democrats will become known as the party of the labor unions, not the party of job creation. It's their choice.

Commentary by Bill George, a senior fellow at Harvard Business School and the former chair and CEO of Medtronic. He is the author of the book "True North." Follow him on Twitter @Bill_George.

Disclosure: Bill George does not own any shares in Ford or stand to profit directly from the passage of TPP.