| Source: Continuous Improvement Associates http://www.exponentialimprovement.com/cms/fostermfg.shtml Social Issues This belief itself may be the greatest threat to our economic health. This paper explains why the U.S. is losing manufacturing and other jobs, why it's a major problem, why government can and should take action to address it, and what government can do to promote growth, create jobs in the U.S., and reduce the exodus of jobs from the U.S. Perhaps more importantly, there are many things the U.S. can stop doing so as to not drive jobs out of the U.S. Current policies that fall in this category could be described as a form of "reverse protectionism." Stopping "reverse protectionism" is not protectionism. I realize that some of the recommendations are unorthodox ... however, I have made a genuine effort to justify them. Download the paper: Testimony To Colorado Senate on SB-04-170, Keep Jobs in Colorado, 2/09/04 (2 pages, 211K) A Systems Thinking Perspective on Manufacturing & Trade Policy Table of Contents: I. Preface II. The Systems Thinking Perspective III. The U.S. economy in trouble: A perfect storm. IV. The Challenge of Dealing with the Mess V. The loss of manufacturing is a major problem. Here’s why. The "innovation and design" and "old manufacturing" economies are each other’s customers. The loss of manufacturing jobs leads to the loss of design jobs. There is no magic wall between "innovation and design" and "manufacturing."
"Comparative advantage" says that when everyone does what they do best and trades, then everyone benefits. However, trading products is "trade," but moving the "factors of production" that produce the products is not within the scope of simple trade; it is "economic migration." That companies will migrate to locations with the greatest "absolute advantage" is explained by the systems thinking archetype, "The Attractiveness Principle." A great many, perhaps even most, economic clusters have not formed because of comparative economic advantage; they were formed due to "accidents" or protected from competition or even government-subsidized. The benefits of policies that promote trade are not spread evenly. There are winners and losers and the losers are not compensated. Even retraining is paid for by the public at large, not by the winners. The requirements of the classical theory of comparative advantage are not met. VI. Can government take action to slow or reverse the loss of manufacturing? Yes. Should it? Yes.
VII. Here’s what government can do.
Why promote clusters and societal networking? Here’s how to promote economic clusters. Here’s how to promote societal networking.
Outsourcing is not a reliable competitive advantage. Expected cost reductions are often not achieved; supply interruption and quality risks often outweigh rewards. Companies selling to China often create their own competitors. Many companies who expect to sell to Chinese markets are disappointed because worker income is insufficient to purchase the products.
It helps regions identify clusters on which to focus and helps companies be aware of shifts. Profits can shift in the value chain in different directions for different products. 6. Stop allowing R&D investment tax credits to companies that do not retain their complementary assets (e.g., manufacturing) in the U.S., because when a nation that subsidizes an innovation does not retain the manufacturing, it does not fully profit from the innovation. 7. Do not let the dollar become overly strong relative to other currencies … … due to excessively high real interest rates (in the recent past). … due to currency manipulation and undervaluation by other countries. … and don’t be too concerned that a weaker dollar will cause inflation; a 5% fall in the dollar raises consumer prices 0.2% … the impact is often overstated
Government support of training and education is needed due to their "positive externalities." Support for engineering technical education has been lagging. Financial support for education should come primarily from the Federal level to prevent "free riding" by states. Colorado is a prime example of a "free rider" state.
Cutting taxes may be irresistible in the face of countries that engage in "tax wars," but beware of the downside: enormous and growing infrastructure backlogs." States engaging in tax competition by cutting taxes on corporations to attract them must be prepared to explain to other taxpayers that their taxes must be raised to pay for infrastructure. Tax competition within the U.S. does not "create jobs," it only redistributes them. "Tax wars" with other countries does not help them in the long run; it only allows countries to lower taxes to the point that they mortgage their long-term future for short-term gain. 10. Do not allow corporations to engage in flawed transfer pricing schemes to avoid U.S. taxes that distort accounting of profits and losses. 11. Exclude corporations that move their headquarters to foreign countries from government contracting. 12. Domestic tax policy should be geared to increasing demand, not promoting investment, because of where the economy is in the long wave cycle. 13. Measure and publicize "national productivity" based on all available U.S. worker hours, in addition to the highly-publicized hourly productivity of employed workers. 14. Include environmental standards in trade pacts. Trading with countries that do not abide by comparable environmental standards creates an uneven playing field and does not help them in the long run; it only allows them to mortgage their long-term future for short-term gain. It is incorrect that, as incomes increase, citizens of other countries will value their environment more and increase protections so as to lower pollution in the future. In countries without constitutional democracies (especially in dictatorships) and without the technical competence and financial means to perform sound science, citizens cannot properly value their environment; the market doesn’t set prices for the environment, governments do.
Trading with countries that do not abide by comparable labor standards creates an uneven playing field and does not help them in the long run; it only allows them to mortgage their long-term future for short-term gain. Requiring labor and environmental standards for trading partners helps them develop a more productive and loyal workforce. In countries without constitutional democracies (especially in dictatorships) and without the technical competence and financial means to perform sound science, citizens cannot properly evaluate the effects of detrimental labor practices.
VIII. Appendix A: Fostering Economic Clusters IX. Appendix B: Shifts in the Value Chain Due to Disruptive Technologies X. References © 2003 Continuous Improvement AssociatesTop of Page |
