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The Future Is Now

Mon, 08/22/2011 - 6:15am

In part one of this article, I outlined some reasons for my opinion that America's economy is in trouble, and that long-term growth is not assured. In this segment, I will offer some prospective solutions—

I believe we are in an economic war of survival and accepting the old free market solutions is going to ensure that we lose. I also believe that we must fight to win and that there are many things we can do to reverse the decline of manufacturing and the future of the middle class:

Tax reductions – Instead of offering a general tax break for all citizens, including the wealthiest (which will not create jobs), Congress should have offered specific tax reductions to manufacturing companies and other businesses that create jobs in the U.S., bring back products from overseas, and make capital investment in U.S. plants. All American manufacturers and businesses who continue to offshore products and jobs should not get any tax breaks, particularly tax breaks or subsidies for going overseas.

Job creation – Besides tax breaks, the government should announce that job creation in the manufacturing sector is the highest priority and offer subsidies for training and tax incentives to make it happen.

Government contracts – The Chinese are focusing on our wind energy market, which is subsidized by the federal government. When Congressional Democrats tried to expand the “Buy America” regulations, Congress blocked the initiative. One year later ABC news reported that 54 to 79 percent of the stimulus bill’s key wind energy program had been spent overseas. I suggest that all programs that are subsidized with our taxpayer dollars should only be bid by U.S. companies.

Technology – The Chinese are focused on getting new American technology whether they have to copy, steal, or create laws to get it. In trying to keep good relations with the Chinese, the multinationals will compromise and give the Chinese these technologies and R&D to keep their Chinese investments safe (as Pfizer Inc. did just this year). America should label specific advanced technologies that are significant for defense or for our competitiveness and they should not be allowed out of the country, as happened in the Reagan administration.

Chinese currency – All efforts by the government to get China to stop manipulating their currency have gotten nowhere. Countries who manipulate their currency for a cost advantage should be asked to let their currencies float and not be pegged to the dollar. This is a huge issue that gives China an unfair (and illegal) 40 percent cost advantage in manufactured goods. It is time to quit talking to the Chinese and do something to get their attention. Sanctions or some kind of tax on imports are the only way we are going to get realistic pricing. Naysayers to these suggestions will warn that since we are borrowing so much money from the Chinese they might retaliate by dumping their holdings of American securities. Here are four reasons we should not fear retaliation:

  1. It is true that their dumping of U.S. assets would decrease the value of the dollar, but it would increase our exports.
  2. A sudden decrease in the dollar would also decrease the value of China’s American assets, causing them to lose money.
  3. In a world awash with savings, we could borrow from other countries.
  4. America is importing 8 percent of China’s GDP in terms of middle class consumer products like copy machines, DVD players, and appliances. They could not sell these products to their people because their middle class cannot afford them yet. China would be stuck with huge inventories and risk mass unemployment.

Tariffs – All tariffs on specific U.S. industries or products should be reciprocated by the U.S until the tariffs are dropped. If we can balance our trade, tariffs would disappear.

Trade deficit and exports – Without fair prices, I believe we have no chance of doubling exports or improving the trade deficit. One way or another we must reduce our trade deficit and be able to export on a level playing field. The Obama goal of doubling exports is a goal without teeth. Manufacturing is the key to exports and we must have a level playing field to have chance to increase our exports. The good news is that there is a World Trade Organization rule, which allows trade deficit countries to apply import duties to balance their trade. What are we waiting for?

Training programs – We need advanced skill training for the manufacturing employees of the future. Despite significant budgets from the Department of Labor for education and training, it does not appear that much of the money is being used to train the highly skilled workers needed for manufacturing. This is the fault of manufacturers who must contact these programs or attend Workforce Investment Board meetings. The government has supplied almost $5 billion for training and manufacturers need to wake up and get their fair share.

Pressure On The Fortune 500
The Obama administration has appointed a job creation commission led by Jeffrey Immelt, Chairman of General Electric, and other managers of multi national corporations. Is this going to be allowing the fox into the chicken house or will they actually do something for their country? If you look at GE's job history from 1999 to 2008, they cut 1,903,400 jobs domestically and created 2,358,000 jobs overseas. GE was hardly alone in eliminating domestic jobs. A very high percentage of the Fortune 500 companies have done the same thing.

Obama is right about one important fact in appointing the jobs commission: the multinational companies are the key to job creation and the turnaround of American manufacturing. The big question is whether GE or any of the other companies on the commission will see it as their job as patriotic devotion to America, manufacturing, and workers, or if they will fall back on their fiduciary responsibility to their shareholders? If the commission is going to walk its talk and convince me to believe that they are really interested in creating U.S. jobs in manufacturing, they will have to stop sending jobs and production overseas as a first step. The next step is to bring back some of the plants and production lines they have exported. I see the problems described in this two-part article as growing just like the mortgage crisis, where for many years we all kept marching towards the cliff. Then one day the financial industry went over the cliff and pulled all economies of the world with it. I believe we are living on borrowed time. If we don’t make decisions on these problems in the near future, a major course correction will be forced upon us.

I believe there are many things we can do to create new jobs, increase exports, and increase our standard of living. But we must quit talking and take bold action. The future is now.

Mike Collins is the author of Saving American Manufacturing. You can find him on the web at www.mpcmgt.com.

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