The Economist Magazine’s Attack on Industrial Policy

The latest Economist magazine has a giant octopus on the cover with the headline, "Leviathan Inc – The State goes back into business." The danger according to the Economist is industrial policy. When it comes to the USA the Economist has it wrong. The fact that the U.S has no industrial policy is exasperating the jobless recovery. Ironically, without clearly stated goals about which industries the U.S needs to concentrate on, we raise the odds that pouring federal dollars into a scattershot of companies will result in wasted money. The evidence: Several business leaders recently have warned that the U.S has lost its manufacturing edge and that the situation is getting dire. In a Businessweek cover story, a few weeks ago, entitled, How to Create an American Job, former Intel CEO Andy Grove advocated just the type of industrial policy the Economist decried. “If what I’m suggesting sounds protectionist, so be it,” said Grove. Last week industrialist Wilbur Ross also warned that the U.S. was loosing its edge in manufacturing, in a Charlie Rose interview on PBS. “So you’re advocating an industrial policy,” said Rose. “Yes,” replied Ross. These warnings come on the heels of a book entitled, “The Betrayal of American Prosperity by Clyde Prestowitz “ Here is a blurb I’ve written about the book. "If you've ever wondered why hardly anything is manufactured in the USA anymore, here's your answer. The former Reagan Administration, trade negotiator, Clyde Prestowitz has written a terrific book that blows holes in the U.S unilateral free trade doctrine that is impoverishing the country and exacerbating the jobless recovery. It’s called The Betrayal of American Prosperity. The book is getting rave reviews by readers who rate it 5 stars at Amazon. Check out my short article about it here at benzinga http://www.benzinga.com/life/politics/10/06/351878/the-free-trade-myth Have you seen the July 5, copy of Businessweek? Joining Prestowitz’s warnings that the U.S unilateral free trade policy is impoverishing the country, is former CEO and Intel founder Andrew Grove. His cover story is entitled, How to Make An American Job. Another former Intel CEO who echoes Andy Grove is Craig Barrett who wonders what kind of jobs will be available to his grandchildren. When normally politically recalcitrant business people are issuing warnings, you can bet that this is a big problem." The U.S government needs to seriously study what industries we need to target in order to remain competitive. Some jobs and industries that we’ve lost due to out-sourcing, are lost forever, and pouring more money and resources into them will be a waste. Then the U.S needs to create public / private partnerships, and foster research and development into promising areas. Too often when the U.S. goes to the bargaining table with our foreign trading partners we have no greater goals other than creating more free trade. That’s why our Asian trading partners are clobbering us at the bargaining table. The U.S needs to focus on how our trade agreements are hurting us and what we can do about it. A great example is how S.Korea is violating trade agreements and keeping U.S and European cars out. Here's some quotes taken from another Economist article dated July 8, 2010, entitled, One-way street - Europe’s carmakers fear the results of a free-trade agreement with South Korea. One wonders whether the author of Leviathan Inc bothered to read it? “In 1995 and 1998 Korea signed memoranda of understanding with America to improve vehicle-market access. But since 1998, American negotiators claim, 15 new regulations—from a unique “anti-pinch” requirement for electric windows (2001) to a similarly unique emissions standard (2005)—have been unilaterally introduced. A confidential document prepared for Ford in 2007 noted: “Alone, most of these regulations could be overcome, but collectively they represent a huge cost and burden, especially for small-volume import sellers.” ACEA believes that there are not enough safeguards in the free trade agreement to prevent the same insidious process starting again after the agreement is ratified. The second problem is that even if the Koreans were to give up playing the non-tariff-barriers game, there remains a deeply ingrained anti-import bias within their government and news media. A report in 1999 by J.D. Power, a market-research firm, on South Korean consumer attitudes towards imported cars found that almost 50% of potential owners feared tax audits if they bought a foreign car; 42% were worried that their car would be vandalised; 30% feared they would be assaulted; and 13% believed that driving a foreign car would make them a target for traffic police.” Isn’t it ironic that the U.S fought a brutal war for the South Koreans, and even today we have thousands of troops there and are still guaranteeing their security, and these people are screwing us by keeping U.S. cars out? The Leviathan articles rightly point out some of the government sponsored inventions, which were huge successes, – the internet, and the microwave oven. There are thousands more of them not mentioned. A target of scorn in the Leviathan articles, is the government money going towards green jobs. The criticism seems absurd. Green industries like windmills, and electric cars, that are receiving government money are in their infant stages and simply won’t survive without government support. The Economist suggests that we initiate a carbon tax on polluting industries so that green industries can compete in the marketplace without government help. It would be great if that were realistic, but Congress has no intention of doing that. Carbon taxes and credits were just shot down by a wide margin. Are we supposed to sit back and do nothing to break away from fossil fuels during a global warming crisis, especially when the world is witnessing the hottest summer on record? What about all of the hidden subsidies that go towards oil and gas industries and to highways? Aren’t they subsidized? It’s expected that the Economist, that great bastion of Anglo Saxon economic theory, would deplore the resurgence of industrial policies. But as the jobless recovery here in the U.S creates desperation, it is inevitable that the government will eventually create more rational industrial policies. The Economist reported recently that employment in Germany is actually higher than before the recession. No doubt due to rising exports, and Germany's industrial policies favoring manufacturing industries. It’s obvious that an unfettered free market, and poorly conceived free trade agreements have failed the USA.