January 28, 2008

America Needs a New Economic Plan

 

As if to stay in step with our international failings, our economy has hit precarious ground. Recession looms, and the stock market is a roller coaster with a worn out structure, like the one at the old amusement park that has seen its best days.

 

The administration equates corporate profits with a strong economy, without regard for the profits’ effects on the rest of the country – severely weakening the people who must ultimately buy what the corporations produce. The bubble stayed aloft longer than many expected, but it seems the note is now coming due, and we’re all suffering the administration’s comeuppance.

 

Dr. W. Edwards Deming, the Total Quality guru, taught us that 96 percent of errors result from the top down. As he put it, “Quality is made in the boardroom.” The current problematic situation is a direct result of the philosophy and policies of our leadership.

 

In the 1950s it became popular to say, “What’s good for General Motors is good for America.” People came to know better eventually. At least in those days General Motors provided jobs for unskilled immigrants and helped build the economic infrastructure of the country.

 

Today, a culture of greed not seen since the 1980s has returned with more meanness of spirit, arrogance and self-righteousness, and less self-consciousness than ever before. The Republican mantra, “Let Reagan be Reagan” has morphed into something like, “Let Enron be Enron.”

 

Dick Cheney develops our energy policy with corporate executives. Haliburton, et al makes billions on Iraq – along with Iran, the main beneficiaries of that debacle. The president pleads with his Saudi buddies to lower oil prices – an effort that Hillary Clinton termed “pathetic”, in one of her better recent speeches. Jobs are outsourced, as gas prices soar, along with foreclosures and lay-offs. Can someone sense a pattern here?

 

To be fair to the administration, aspects of the current situation result from historical forces that transcend any particular policies. The United States became an industrial giant in the 1800s, largely as a result of having the largest unrestricted market in the world, and a culture and infrastructure that strongly supported industrial development.

 

The U.S. comparative advantage expanded to research and innovation. People came here to be at the cutting edge in most scientific fields, especially those related to industry and business in general. As the world became more ”flat”, to use Tom Friedman’s now famous term, developments in science became as likely to come from India, or many other countries, as from the good old USA. Even the Serbs and the French compete in the Australian Open final, with few Americans in sight.

 

For a long while the United States possessed much of the capital that fueled economic development around the world. This made it possible for an American in Indiana to be running a successful bicycle business, with the bicycles being manufactured in China, and sold in Europe – with the business owner not even seeing a bicycle.

 

But now we have become a major debtor nation. The Japanese bought Rockefeller Center some years ago, and eyebrows were raised – at the time a prophetic anomaly. Foreign capital now owns increasing pieces of the U.S. Instead of selling products and services, our largest financial institutions are selling significant percentages of themselves to foreigners, to raise the money to stay in business. If the Chinese and others were to decide to switch their reserves from dollars to Euros, we would be in really deep doodoo.

 

The United States needs to identify and develop its current comparative advantage in the world. It’s a strategic planning issue – for our country as a whole. The statements from most Republicans, and some Democrats, unfortunately sound as if we were still back in the 50s – just needing a few extra tariffs to bring those high paying union jobs back to Michigan.

 

We need a comprehensive industrial policy that considers the changing reality of this century. Ultimately we need to be selling a lot of something to the rest of the world, to compensate those folks for the huge amount we are buying from them, and not only at Wal-Mart. Our success will determine our economic and physical security.

 

Like any business development, this will require investment. This will not occur while we squander billions in Iraq and lower taxes for people who use the proceeds in ways not benefiting the economy, at least not this economy. Real economic development depends on more than corporate houses of cards and smoke and mirrors that produce corporate profits at the expense of the rest of the country. We must respond to this difficult challenge.