American Industrial Policy
by Alvin EnnsLink to article
America was settled for trade opportunities and has had international trade ever since. In the automobile industry partnerships were formed with companies in other countries almost from the beginning. Ford Canada began in 1904, Oakland Motors joined GM in 1909 and so on. These arrangements were made essentially by corporations to expand their markets and also to reduce the duty barriers. Corporations lobbied for easier trade across borders and NAFTA was signed in 1992 and ratified in 1994 which eliminated duties on approximately half of the goods flowing across Canadian and Mexican borders. Ross Perot ran as an Independent presidential candidate in 1992 and he warned us about the sucking sound of jobs going South.
A lot has changed since NAFTA. Many jobs did move to Mexico (textiles, Maytag, etc.) but those jobs have since left Mexico and moved to Asia and are further moving to countries with cheaper labor. Several documentaries have investigated the movement of jobs and have reported on the ever-increasing ratio of original labor costs to selling prices. The players that seem to be the big winners are the corporations and shareholders and the losers are the people working the assembly lines.
Manufacturing in the US used to support a middle-class standard of living. One parent working at GM or Ford used to make a good income and could support their family and send their kids to University. It used to be the goal of parents to have their kids graduate from University and get a better paying job as a professional in one of many fields. Those high-paying manufacturing jobs were the first to move offshore and now even many professional jobs like engineering and radiologists are subject to outsourcing.
International trade like the automobile industry grew to expand markets. Now it is dominated by jobs moving to centers of cheaper labor and cheaper goods coming back to the US, generating a huge trade deficit, and nobody seems to be concerned. Corporations are getting richer and spending more on supporting campaigns and lobbyists and the politicians are not feeling any pain. Our economy is growing and unemployment seems to be stable so the numbers look good. We are aware that 46 million Americans are without healthcare but corporations are beginning to lobby for national healthcare as a way to reduce their manufacturing costs.
Then we have become dependent on other countries for our oil supply and have engaged in war to protect “our national security.”
I think a huge problem is brewing and our country is sliding into 3rd world status. The GINI coefficient (ratio of income disparity) for the US is approaching that of Mexico and our education standing is 17th of industrial nations. Lou Dobbs has been campaigning for the threats to our middle class and the impact of illegal immigration but he doesn’t seem to get much attention. Conservative ideology is dominant in this country, making it unpopular to propose that government should do anything to interfere with the economy; private industry will solve all of these issues. But, similar to a century ago, private industry alone is having a negative effect on this country.
With our technology and transportation, corporations have little allegiance to nationhood. It is now very easy for them to move manufacturing to the lowest cost centers and move their headquarters to countries with lowest taxes. They are in their heyday were they can focus on making money and don’t even have to have their own police to control their workers like they did 100 years ago. But who is looking out for the people?
We need an industrial policy but what should this consist of? Conventional wisdom is that protectionism has negative consequences and we also do not want, from a moral perspective, to impede other countries from increasing their standard of living. However, I am not convinced that some elements of protectionism isn’t warranted. I visited Bermuda several years ago and I was struck with how prosperous the island was, particularly compared to other tourist islands in the Caribbean, and I found out that they had a strong “Bermuda first” policy (eg.s foreigners had to pay a very high tax to buy property on the island, foreigners who wanted to work in Bermuda had to go through a labor certification annually).
FDR and his economists came to the conclusion that, in a time of stagnation, public spending was needed to give a boost to the economy. I would suggest that in our current condition, public investment is justified to spur growth of middle-class jobs but it’s difficult to select exactly what to invest in. Back in the 1960s we invested in the space program and we’ve learned a lot and developed new technologies. While the impact on our economy may not be quantifiable, the decision to go into space has been accepted.
Here are some elements of what an American Industrial Policy should contain:
- At a high level it should develop and exploit our human capital.
- We need to work with private industry to form a better partnership. For example, our education programs are already developed to prepare students for employment. The automobile industry is lobbying for national healthcare as a means to reduce their production costs. However, this partnership needs to go in both directions and skipping this country to avoid US taxes is not being a good corporate citizen.
- We desperately need green energy technologies and private industry has come up with windmills, ethanol, methanol, etc.
- We also need to look at what technologies and manufacturing we need from a national security perspective. While we might decide to continue to import, we should, at a minimum, develop the technology necessary such that we could resume production of those products.
Tags: industrial-policy, international-trade, Lou-Dobbs, NAFTA