Is The US Becoming A "Banana Republic"?

Are foreign countries and companies using the "Wal-Mart model" to undermine American industry?

US economic incentives and trade policies encourage foreign producers to invest in this country. While the nation may be experiencing short-term benefits from foreign investment, the long-term harm may far exceed expectations, as is the case when Wal-Mart has invested in some local communities.

Undermining American Industry

The result of these US economic incentive and trade policies seems to be dramatic erosion of American industry through predatory competition and utilization of cheap overseas suppliers, analogous to the displacement of many local merchants that sometimes follows the introduction of Wal-Mart into a local economy.

Predatorily Undercutting Domestic Industry

A year ago, the entire state of Vermont was added to the National Trust for Historic Preservation's list of America's 11 most endangered historic places. The reason for the add was an expansion plan for 7 new Wal-Mart 150,000 square foot retail stores into a state which itself has only 600,000 residents. The National Trust cited the following concerns:

• Economic disinvestment in downtown districts
• Loss of locally-owned businesses
• An erosion of the sense of community
• Possible impact on jobs, traffic, the environment

Their findings suggest Wal-Mart is predatorily pricing out local businesses by providing cheaper prices to local consumers but ultimately eliminating local competition and taking profits and local skilled producers out of the local community. "Communities often welcome these large stores in the hope that they will bring economic benefits," but "too often, however, the stores bring hidden costs and cause significant economic and social harm," said the National Trust.

Foreign Investment That Destroys American Industry

In Ohio, Governor Taft led a trade mission to Japan and Taiwan in 2004 to bring foreign investment to that state. According to the Business Journal of Youngstown, Taft expects this to yield $154 Million in new foreign investment on top of $473 Million through previous trips and efforts. To date, Taft projected 1,395 new jobs have been added through these efforts.

What is the result? In Central Ohio, according the Greater Columbus Chamber of Commerce there are over 100 foreign industrial companies feeding the nearby Honda manufacturing facility and competing with other American-owned industry. The industrial job base in Central Ohio is nearly completely dependent on continued goodwill of these foreign employers. The majority of American-owned "industry" in Central Ohio is distribution and warehouse facilities to store and forward goods made by foreign companies or their US subsidiaries.

Central Ohio has no assurance from these foreign controlled industrial facilities that profits, knowledge gained, or taxes will stay in the area.

For example, Honda ships in volumes of components and parts from overseas and then exports soybeans back to Japan in those same containers in record amounts according to Forbes. A definition of "banana republic" includes a country importing a majority of finished goods and exporting mostly raw resources.

Where is the long-term value to America from having other countries supply and control our industry?

Foreign industry has effectively colonized Central Ohio and the Governor has led 6 "trade missions" to try and encourage this.

Today, General Motors has a market capitalization of almost $14 Billion. Toyota Motor Company has a market cap almost 10 times of that and has almost $20 Billion in cash and 1/4 of the debt of General Motors. Toyota could gain control of over 50% of General Motors for approximately 1/3 of the cash Toyota has in its bank account today. If we were in a military war, this would be considered an extremely vulnerable position.

Recognizing Our Losses

How much do we have to lose before we recognize that other countries, like Wal-Mart, have a plan to gain market share at the expense of our own industry; and all the while, we are not backfilling with new offsetting industry, new services, or any other means through which we will secure our future?

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