Why We Can't Compete

Excerpts from the Economic Rot Blog

The problems in our economy are many, and the issues at hand are far more than just a housing bubble losing its steam. Although housing has played a major role in our economy during the last 5+ years (and when it falters the repercussions will be felt far and wide), it is just one of the many issues at play... We also have massive trade deficits, increasing cumulative debt, foreigners holding vast sums of dollars, waning confidence in those fiat dollars, soaring energy costs, skyrocketing health care costs, negative personal savings rates, major immigration concerns, nearly broken Social Security system, nearly bankrupt pension plan system, decaying moral foundation, inept leadership, out of control government spending, irrational market exuberance, completely oblivious consumers, etc… I could go on, but the main issue I’d like to concentrate on today is: Outsourcing of US jobs and foreign ownership of US industries

Open borders, NAFTA/CAFTA, and the like have made it extremely difficult for US industry (within our borders) to compete with the rest of the world, and these agreements have been (to a large extent) responsible for the loss of many well paying US jobs—jobs that were replaced through the outsourcing of foreign workers--to reduce costs and stay competitive. Many of the industries that didn’t want to (or weren’t allowed to) follow these new rules of business (outsourcing) eventually found (or will find soon) themselves unprofitable and had to either change their ways or close their doors… Which brings us to today.

Today, the US still has many home-bound corporations (examples: GM, Delta, Delphi, Dana, etc) who have tried to hold on to their past modus operandi, yet seem to be reeling from the high cost of US labor, health care, legacy pension plans, etc. Most are finding it increasingly difficult to complete in the world marketplace and realize that, without change, they are doomed. And changes are on the way… to the detriment of our country and the US worker.

NAFTA/CAFTA and other free-trade agreements have eliminated and/or reduced many previously existing import tariffs, making imported products much cheaper than home manufactured goods. This has caused many US manufacturing industries to lose large portions of market share, which has increased both the import of foreign goods and the export of US dollars. These free trade agreements have now been in place for so long, it has become of no concern to most that our huge (and ever increasing) trade deficits have now placed trillions of US Dollars into the hands of foreigners… foreigners who use these dollars to buy up the U.S.

This buyout situation is extremely scary, as foreign entities have used (and are still using) many of their dollars, earned through their exports and the never ending US consumption of foreign goods, to purchase many of our own US industries. The numbers here are absolutely staggering and seem to be growing every day.

KEY SOLUTIONS FROM THE EDITORS AT ECONOMY IN CRISIS

Drastic action is needed to restore our economic and financial independence and we must begin immediately to rebuild our industries. The first essential is that our government should ensure that it is once again profitable to produce most goods and services in American factories employing American workers.

We must establish policies that prevent other countries from doing to us what they would never let us do to them. Specifically, we must halt the sale of key assets to foreigners. We must also close up opportunities foreign corporations to compete unfairly against our home industries. We should move immediately to curb our out-of-control spending on unnecessary programs and initiatives that are being financed by foreign debt. We should institute policies to cut back our consumption, and particularly consumption of imported products. We should look to the way other nations have established industrial superiority over us and try to copy their best policies. We should not allow individuals and companies to profit by selling out America.

No plan to revive our economic and industrial self-sufficiency will be pain-free. Because our industrial decline has already gone so far – it has been proceeding rapidly for more than 30 years already – restoring our industry to world-leading standards of competitiveness will require serious restrictions on trade and investment flows. Despite indisputable evidence that current policies have proved grossly inadequate or even counterproductive in the past, our opinion leaders remain committed to a business-as-usual strategy that is doomed to failure.

The impetus for new policies must come directly from the broad American public and voters must shirk from no reasonable methods to pressure elected officials. Without direct and immediate action, there will soon be little left to save.

1. Protection
Our industries, assets, resources, and companies need to be protected from foreigners seeking to gain control of key industrial processes and technologies. This would include preventing the sale of US domestic companies to foreign companies and eliminating offshore outsourcing except in extreme circumstances.

2. Fair Trade
Our trade treaties should protect our country from predatory foreign countries seeking to weaken or destroy American industry. To that end, tariffs should be erected where needed and where practical. Experience has shown that it is futile to expect other countries to adopt our policies on, for instance, fair and free competition. What we can do is control the impact of their policies on our economy. The most obvious tool we have is tariffs on their exports. No doubt our tariffs would set off retaliation abroad. We would also have to accept that demand for US debt would decrease. But in the long run, these negatives would be much more than offset by positive effects as American entrepreneurs and industrial executives enjoyed a massive incentive to renew our industrial base.

3. Domestic Industry Competitiveness
In addition to establishing protection for our industry and country, we should properly align our companies with the national interest by changing the incentive system within which they operate. The tax structure should be changed to encourage industrial revival, particularly in industries which have been worst hit by unfair foreign competition. One simple but highly effective measure would be to shorten the depreciation schedules on capital investment and research spending. Meanwhile capital gains taxes should be increased to discourage short-term thinking and reduce the incentive for entrepreneurs to cash out.

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