“…the thought that this nation can function while writing off its basic industries is nonsense”
– Felix Rohatyn, circa 1977
It’s rare that news of a corporate job change in middle management is on the first page of the New York Times. The chief of technology at a Silicon Valley, California supplier of equipment used to perfect computer semi-conductors, solar panels and flat panel displays, is moving with his family to China to take advantage of its extraordinary business opportunities and high-tech economy.
Today American businesses are making deals to license Chinese technology. China produces two-thirds of the world’s solar panels; is the world’s largest auto market ( GM is setting up a research center there); is the world’ biggest market for desk-top computers and has more Internet traffic than any other country. Intel has opened a research lab in China for semiconductor development. American industrial companies are laying-off thousands in America and Europe to set up shop in China where there is an enormous supply of highly trained and educated engineers and technologists ready and able to go to work.
China has 18 cities larger than New York City. One of them, Xian, has 47 universities (more than Boston) and other institutions of higher learning that are turning out engineers with Master’s degrees who will work for $730 a month
A philanthropic foundation concentrating for years on the support of American colleges of engineering, recently gave up that role to purchase and staff its own college of engineering.
A Xian company has a world-leading laboratory for cleaner coal and has just licensed that technology to an American company for $100 million to import a maze of equipment that turns coal into gas before burning it. Chinese engineers will come to America to teach our people how to assemble and operate the machinery.
President Obama mentioned clean high-tech green energy when he talked about our need for a new industrial approach. But in his State of the Union speech he implored small business and agriculture to begin exporting goods. Small business and farmers!!
America no longer produces or services. It is out of work…and the brain drain is just beginning.
America – in the midst of a Great Recession – is out of jobs.
The unemployment estimates say we need 11 million new jobs right now just to get us to the employment we were at in 2007.
Some reports say that there are 17 million people out of work – some say, 25 million when you count those people no longer looking for work.
At this writing the latest employment news is that we only lost 14,000 jobs in March and gained 162,000 new jobs. This news is proclaimed as a ‘turnaround’.
Although few talk about it, no one knows where the jobs will come from. The new Administration jobs bill, signed as this was being written, offers tax breaks to employers hiring and retaining new employees. It provides more money for infrastructure construction. It helps States maintain certain levels of employment. But it does absolutely nothing to put non-construction workers back to work. There is no work for them.
In Orange County, California where Toyota will close a plant putting 4,700 people out of work and so threatening the employment of 20,000 more – the jobless rate is at 20% in that populous area of the country.
If you are reading this, you know what has happened. A powerful, greedy, unregulated financial system took advantage of an unreal housing market to made risky bets on highly speculative (and apparently fraudulent)investment instruments based on mortgages (also fraudulent) developed by PhDs in physics not business people. When those instruments went bad, they covered up their debt with more financial subterfuge until one company finally came apart throwing the entire financial system onto the edge of collapse.
The government saved the financial industry and the country from another Great Depression, but could not alter what has happened to the country: banks no longer respond to credit needs as they did and so businesses collapse, business opportunities dry up, housing goes into foreclosure and unemployment soars – more than 10% of working America.
As we did in the 1930’s, we see the power of unregulated big business – with its ‘markets are everything’ concept and its greedy, sometimes fraudulent activities – severely affecting the lives of the American people and its economy. And as it did in that Roosevelt era, government today has tried to counteract what has happened in the private sector with bank bailouts, an enormous financial stimulus bill and the brand new jobs bill.
But unlike the previous era where America was just beginning to build an industrial powerhouse unlike any the world had ever seen, today’s America no longer produces anything and seems to have no interest in doing so. From world’s greatest industrial power to debtor nation status – buying from others but selling to no one.
Roosevelt had jobs to offer in a range of fields. Obama does not. Where did they go?
INDUSTRIAL POLICY AND WALL ST. – A LITTLE HISTORY
For the first time in the 20th century, America started running trade deficits in 1970; we imported more than we exported. Factories manufacturing apparel, shoes and plastic toys began closing down. Soon so would steel mills, small appliances and auto parts.
The Arab countries began controlling the flow of oil to these shores meaning that the cheap energy which had fueled our manufacturing would soon no longer exist.
With all our outstanding industrial success from the 1930’s through the wars and into the 1960’s, America had never had an industrial policy. Government might have ordered weapons systems and directed the source of funds accordingly, but the free and private market place ruled.
Those who saw government as the only entity capable of controlling the private sector’s avarice and power; believed that the manufacturing sector as the generator of productivity, the innovative engine of America’s outstanding progress and prosperity, could be directed by government policies in conjunction with the ‘markets’. We were the world’s dominant industrial power; government had been a major player in our success; its policies had produced the world’s first ‘middle class’; it had led the effort to reindustrialize Japan and much of Europe. There was every evidence that government could continue to keep America strong and vital by setting policy; it deserved to set the ground rules of our long-term manufacturing policies.
These feelings were definitely shared by essentially liberal leadership regardless of party label. Toward the end of his presidency, Dwight D. Eisenhower established a Commission on National Goals. President John F. Kennedy showed how government policies could get us to the moon. Richard M. Nixon had proposed a national growth policy that would guide public and private investments.
Not to be outdone, in 1976, as part of the Bicentennial, state and regional governments began sponsoring citizen forums to develop plans for what their communities would look like in 2000. These plans included the future of manufacturing in America.
But all of these plans had powerful enemies in the Republican Party. Despite his essentially conservative fiscal policies, some believe that if Jimmy Carter had won reelection, this early work might have produced something good. Carter certainly understood how government policies had assisted peanut farmers and the development of the atomic submarine – two areas of his personal involvement. And given what was happening in the world oil markets, he certainly had to see the value of a long-term alternative energy policy financed and nurtured by government. But he did not. When Ronald Reagan became President, it all changed.
The central theme of Reagan’s administration was easy to understand: government had no ability to set national industrial goals; only the free market could do that well. In fact, they went so far as to claim that what the private economy produced was none of the government’s business!
Long-term planning was unnecessary because that negated the free market’s ability to set the rules: short-term policies emphasized- and could easily measure – profits. Government might be responsible for fiscal and monetary policies to stabilize the overall economy, but all other decisions about manufacturing were to be left to markets.
Financiers working within the US Treasury Department, were against giving government the power to guide private investments because that would serve the interests of American producers and manufacturers, rather than global investors.
In summary, what happened in the Reagan years – with continued help from Bill Clinton – brought us eventually to where we are today. Reagan’s time was all about corporate mergers; market consolidation into bigger and bigger corporate entities; the beginning of a global economy. America needed to keep up. Wall Street would be the funder of this effort -providing the money to make the changes in the marketplace as we know it today.
Wall Street was comfortable with government subsidizing capital with tax breaks, providing loan guarantees and even bondholder bailouts…like the ones in the 1970’s for Chrysler, the Penn-Central Railroad, Lockheed and the Franklin National Bank. But for it to do so on a planned basis was unthinkable – that would be socialism or worse.
In fact, Wall Street had figured out that shrinking manufacturing industries would essentially shrink the political power of unions!
Their mantra was not long-term growth but quarterly financial reports showing profits. What mattered now at corporate headquarters was not the manufactured excellence of a product, but profits and with it, higher and higher stock prices.
Then came Wall Street’s ultimate suggestion – the best way to show the highest quarterly profit, was to make a singular change in where goods were manufactured and where the workers were. If American workers were the highest-paid in the world, it was time for the CEO’s to move manufacturing out of America to any number of foreign shores. And they did. And little by little American workers stopped producing the goods we all bought and that we exported to the world.
As this happened, Wall St. advertised that while we no longer were producing manufactured goods – we were going to be the distributors and marketers and financiers of these goods. We were moving to become a nation servicing goods produced elsewhere: A service economy.
Until just a few years ago, when then Wall St. advised the big companies that short-term profits would be a great deal higher if we sent those service jobs to India, Bangladesh, the Phillipines and elsewhere where English was spoken. Why keep those backroom jobs for Americans when there were educated young people in these English-speaking countries who could handle all those telephone calls and e-mail messages cheaper than American graduates?
And so it went for American industry…further and further from home. We lost a manufacturing economy and then a service economy. What we have today is an economy out of work and in debt.
In 1992 President Bill Clinton talked about turning the work of the military-industrial complex (we never stopped manufacturing weapons systems) to such areas as medical technology and high-speed public transportation. It never happened. With Robert Rubin of Goldman Sachs and Harvard’s Larry Summers at his side, Clinton supported cheap money, tight budgets and free trade. While American industry retreated further and further overseas, Rubin helped Clinton reverse the federal deficit into a surplus. As a response, Clinton agreed to free the financial system of the last of the restraints placed on it in the 1930’s – investment houses could be banks and banks could be investment houses. This deregulation of the financial system and the abandonment of US industry to an unwinnable competition with low-wage Chinese mercantilism, essentially undermined what was left of the long-term health of the US economy.
CHANGING THE SYSTEM
President Obama has brought Larry Summers back to serve as his chief economic advisor. That will make real change to a genuine industrial policy difficult.
Treasury Secretary Timothy Geithner is a young man whose future is on Wall St. He is a protégé of Robert Rubin. His role and thinking will make real change to a publically-driven industrial policy difficult as well. It will certainly make regulation of an industry he will rejoin at the highest level once he is no longer in Washington, a task he will be unable to fulfill.
Without such policies, President Obama’s desire that we become industrial and high-tech leaders again in such industries as clean energy, will be not only difficult but impossible.
To revitalize our power position in the world – and to put Americans back to work – we must begin manufacturing again. Our massive foreign debt – mostly to China and Japan, must be seriously reduced. Our very significant trade deficits must end and will if we manufacture for export. And we must transform to an energy efficient future. These are essential changes that must be met.
The goal of an industrial policy must be to be productive again as a nation and not simply add to the profits of American-named corporations not producing anything in America.
The future of our productivity must be that – and not simply the support of hedge fund operators and financial speculations.
Knowing this, President Obama indicated that he would develop a program that would heavily tax corporations which produce their goods abroad. Nothing has happened yet.
We think he should go beyond that step and bring back all those backroom service jobs being handled by young people abroad. We need those jobs – they are what American college graduates can use to begin their working lives. Whether through a tax or some other prohibitions, those jobs should be brought back to America. The President should use his bully pulpit to publically name the names of all those American companies with all their jobs in Europe or Asia.
Let’s bring the jobs back so that we can move ahead as a productive nation.
Elsewhere on this website we speak of the historical imperative: great nations losing their power and never again attaining it. Failing to educate new generations and failing to produce manufactured goods are the symptoms of that loss. Americans have the will to alter that imperative – it needs leadership to free that will and put it to work.
Martin I. Hassner
Content Editorial Director