The wealth of the United States was largely achieved during the 20th century through the development of our industrial base. Our manufacturing industry has been eroded and rebuilt overseas, motivated by our domestic and foreign policies that did nothing to maintain America’s manufacturing capabilities. Free trade is meant to provide a mutual advantage between the two trading parties. When one country is better at production in one particular sector, and the other party is better in another, the two benefit from trade. What we are witnessing in the United States is not free trade, but rather an imbalance of trade. The United States is not one of many specialized producers trading with other countries, but rather a net consumer of dangerous proportions.

This has been extensively documented and is evidenced by 30-plus years of constant trade deficits and a most recent deficit of approximately $700 billion in 2007 – the U.S. simply does not produce enough to maintain a comparative advantage.

Coming to terms with reality
U.S. consumers of many products, including capital equipment, now find that foreign imports or foreign-owned domestic producers provide a better value or quality than their domestic counterparts, if they even exist. Current policies are simply failing to stimulate competitive domestic industry by taking away incentives to remain a domestic producer.

Limitations of the free market
Capitalism is motivated by profit, which can be affected by government tax or other policies and foreign competition. If the policy of the government and foreign competition does not allow for profitable returns on investment in critical domestic industries then it seems there are two options:

1) Protectionism
By closing the trading borders, domestic demand may be met with increased industrial domestic investment. However, in limiting foreign goods, U.S. consumers will not be able to afford much-needed goods until domestic industry catches up. There is also the risk of encouraging domestic monopolies and suffering a loss of efficiency.

2) Government direct investment
For industries that do not provide sufficient return for risking private capital, there should be a way to employ public money to benefit the entire country. This is what happens with government health care programs, military, public transportation, and countless other examples. There should be some mechanism to ensure that core commodity (like steel and transportation) industries that form the basic platform for a self-sufficient industrial country be maintained even if these commodity industries themselves are not profitable to private investors.

Examples from other countries

Japan, through its Ministry of International Trade and Industry (MITI), has helped provide leadership and assistance for development of industrial productivity and employment.

According to the Federation of American Scientists (FAS), “MITI facilitated the early development of nearly all major industries by providing protection from import competition, technological intelligence, help in licensing foreign technology, access to foreign exchange, and assistance in mergers.”

MITI is a successful case study in how the government can work with industry to stimulate core sectors that serve the entire country without attempting to establish a centrally planned economy.

The FAS continues: “MITI served as an architect of industrial policy, an arbiter on industrial problems and disputes, and a regulator. A major objective of the ministry was to strengthen the country’s industrial base [by encouraging investment through incentives and selection of most needed products and development procedures to be developed that would benefit their most important industries like steel and robotics]. It did not manage Japanese trade and industry along the lines of a centrally planned economy, but it did provide industries with administrative guidance and other direction, both formal and informal, on modernization, technology, investments in new plants and equipment, and domestic and foreign competition.”

We should take the best that other countries have to offer and refine it with our own experience and objectives. By doing nothing we allow those countries that have developed to continue dismantling our own system and destroying our ability to compete.

Japan has used intelligent planning as opposed to our unplanned industrial regression (witness the auto industry). Japan is accomplishing this from the base of ashes it had at end of the war in 1945, with only 4 percent of our land area, 40 percent of our population and absolutely no natural resources. It is very obvious from their example that there are better ways than our own and that major changes should take place immediately or we will be relegated to become a second class power and eventually a second class country.

Print PDF