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November 3, 2009
Exclusive: Keep it ‘Made in America’
In his weekly address on October 31st, President Barack Obama said the Recovery Act stimulus package had provided “100 grants for businesses, utilities, manufacturers, cities and other partners across the country to put thousands of people to work modernizing our electric grid – the system that provides power to our homes and businesses – so that it wastes less energy, helps integrate renewables like wind and solar, and saves consumers money.” It is a proper use of government to expand national infrastructure. It is also proper for the President to state as his objective, “In areas like clean energy, we’re creating the jobs of the future – jobs that pay well and can’t be outsourced.”
But is this objective really being fulfilled? The Wall Street Journal reported the day before Obama’s address that “A Chinese wind-turbine company, with financing help from Beijing, has struck a deal to be the exclusive supplier to one of the largest wind-farm developments in the U.S., a sign of how Chinese firms are aggressively capitalizing on America's clean-energy push.” The Chinese Shenyang Power Group manufacturing the turbines will receive a $1.5 billion subsidy from Beijing to help it capture the American market.
The WSJ article is a must read as it documents that it is going to take more than speeches and good intentions to rebuild the U.S. industrial base in the face of determined action by overseas rivals.
I recently attended a conference in Washington sponsored by the Alliance for American Manufacturing meant to promote the revitalization of domestic industry. Over the last decade, 40,000 factories have closed in the United States and more than 5 million jobs have been lost. And these have not just been blue collar jobs, but positions in management, engineering, research, and a variety of associated services. The U.S. has fallen to 22nd place among national economies in percentage of GDP devoted to non-defense R&D, which is a sure way to lose future high-tech markets.
In today’s highly partisan atmosphere, where special interests and ideologies often overshadow any concern for the national interest and pragmatic problem solving, it was good to see John Surma, CEO of U.S. Steel, sitting on the same panel as Richard Trumka, president of the AFL-CIO. Both made the same case for economic growth, including appeals for more investments in research, infrastructure, and high-skilled worker training, along with greater vigilance against foreign rivals so there will be markets both at home and abroad to sustain American jobs and capital outlays.
The same spirit animated the excellent presentation by Scott Paul, the executive director of AAM. Paul was a trade lobbyist at the AFL-CIO before helping to create the AAM in 2007. He praised Ronald Reagan as the last president who took industrial policy issues seriously. It was under President Reagan that the Plaza Accord to realign the value of the dollar in an orderly fashion in cooperation with our major trading partners was negotiated. DARPA (Defense Advanced Research Projects Agency) invented the Internet (before Al Gore). It was in the 1980s that SEMATECH was created to combine private industry with the national laboratories to advance semiconductor design and manufacture. Reagan also intervened to save Harley-Davidson when it was being savaged by foreign rivals. And he negotiated Voluntary Export Restraints (VER) with Japan which placed a quota on automobile imports. The VER program not only protected American manufacturers but prompted Japan to open assembly plants in the United States, insourcing to create jobs. “Reagan Democrats” were attracted from the hard working middle class in the industrial heartland, something too many Republicans have forgotten how to do.
The VER program was so successful that foreign interests got the practice outlawed in the Uruguay Round of international trade talks that created the World Trade Organization in 1994. Reagan opposed creating the WTO, and the Uruguay Round stalled during his administration. But President Bill Clinton accepted the WTO, along with the end of the VER program, and signed the Uruguay Round agreements. President George W. Bush followed Clinton’s line on trade policy, making U.S. economic failure in the international arena a bipartisan blunder.
Reagan is too often used in simplistic fashion by conservatives who have been seduced by libertarian sophistries about “government being the problem” when Reagan’s real legacy is one of strong leadership and patriotism. Promoting science, energy independence, and the defense industrial base, all in the name of nationalism, once were a core set of conservative concerns. The right needs to get back in the game.
Reagan’s focus was the Cold War, which he won by demonstrating that the American economy was stronger and more innovative than that of the Soviet Union. Government support for R&D was concentrated in the defense industrial base, but the benefits spread to the commercial sector. Economic supremacy did the job without triggering a “hot war” but it also impressed upon new rivals like China the importance of putting the power of government behind industrial growth, technological progress and the development (and defense) of markets to sustain national production.
When the Cold War ended, there was the naïve hope in intellectual and business circles that “peace was at hand” and no one needed to worry any more about international struggles. Some even fell for the most foolish of all notions; that “the end of history” was upon us. That will only come with the end of days. The struggle for wealth and power has continued and, if anything, has intensified. While Americans took their success for granted and ran off to the mall to celebrate, the rest of the world got to work.
In the wake of the financial crisis and global recession, which had its origins on Wall Street, America now needs to get back to work as well. There was considerable criticism at the AAM conference not only of how government has fallen asleep at the wheel, but how Wall Street moved into the vacuum of national policy to run the economy into the ground. Forty percent of total corporate profits in the years before the crash were made in the financial sector, while manufacturing stagnated, or ran in the red. This is not a new problem. The British Empire made the same mistake, as The City of London dominated policy for the benefit of the banks at the expense of industry.
As P. J. Cain and A. G. Hopkins argue in their massive work British Imperialism, 1688-2000, “In this stage, she financed, transported and insured an increasing proportion of the manufactured goods produced by other countries.” For the international bankers “free trade” made sense. It did not matter to them where production took place, if they could get their cut through the provision of financial services. Wall Street has taken the same attitude, often pushing American firms to move operations overseas to increase the return on borrowed capital.
One area where Wall Street failed, despite the best efforts of Treasury Secretary Henry Paulson during the Bush Administration, was China. Paulson had made a personal fortune helping the Beijing regime as CEO of Goldman Sachs, but the Chinese authorities were keeping a tight reign on foreign bankers. Beijing rejected Paulson’s arguments to open up the Chinese market to innovative American banking ideas – and thus avoided the financial collapse those ideas brought to the United States. China has built the largest financial reserves in the world by winning the manufacturing and trade war, not by sacrificing industry to finance. In China, the banks (owned or controlled by the government) serve the real economy and the needs of the nation.
Beating back the Chinese, who make up three-quarters of the non-oil U.S. trade deficit in goods, was a major theme of the AAM conference. Beijing is not just an economic problem but a strategic problem. As Admiral Robert Willard of Pacific Command said in South Korea October 21st, “I would contend that in the past decade or so, China has exceeded most of our intelligence estimates of their military capability and capacity every year. They've grown at an unprecedented rate in those capabilities.” Carolyn Bartholomew, chair of the U.S.-China Economic and Security Review Commission, gave an excellent overview of Beijing’s challenge at the AAM meeting.
A sense of urgency permeated the AAM conference. A bevy of sound proposals for building U.S. capabilities in manufacturing and technology, and for shifting capital from funding consumer debt to supporting productive work, were presented. Yet, there was a hesitancy to advocate what every successful industrial policy has had to do throughout history; control foreign access to the domestic market so the benefits of growth generate a positive feedback that moves the country forward. Tariffs, quotas and “buy America” laws should, among other things, keep Chinese generators out of U.S. energy systems.
The objective of policy must go beyond merely creating a “level playing field” that offsets the massive subsidies and protectionist measures used by overseas rivals. There must be a “home field advantage” for American citizens in their own land, as was the case when the U.S. was on the way up. The policies of economic nationalism that built America into the world’s largest industrial power are also needed to maintain its preeminence. As the AAM conference slogan put it, “Keep it made in America.”
FamilySecurityMatters.org Contributing Editor William R. Hawkins is a consultant specializing in international economic and national security issues. He is a former economics professor and Republican Congressional staff member.
Reader Comments: Submit Your Comment (1)
We all know that there is a large amount of merchandise labeled Made in China, however, no one has addressed the products that are labeled Packaged or distributed in the USA by _______.
A lot of food and dry goods onlu lists where the product is finished. I think this is false advertising and labeling.
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