Innovation Cannot Sustain the Economy

In their push to knock down American trade barriers and usher in the era of globalization, free trade proponents often claimed that the lack of impediments to international trade would allow the nation to remain the leader in the 21st Century economy, providing the U.S. with the opportunity to focus on more highly specialized fields like research and development.

That, however, according NYU professor Ralph Gomory is simply not possible.  Writing in the Huffington Post, he says that it is a mistaken belief to think that America can remain economically competitive without producing products in the U.S.
 
“Balancing trade on ideas and R&D simply cannot be done,” he writes.  “The most elementary analysis shows that the scale is entirely wrong.” 

According to Gomory, with any economic good, there are four choices: go without, produce it yourself, trade it for another product or import it and pay for it at a later date.  Since the era of globalization, America has been doing too much of the latter.  Allowing China to become America’s factory has put the nation deeply in debt through trade imbalances, which is unsustainable in the long-run.
   
“When our trading partners, especially China, no longer want to loan us hundreds of billions of dollars a year to be paid later, we will have little productive capacity left and we will be a poor nation,” he writes.

The idea that America can remain an economic powerhouse without its manufacturing base, by simply innovating, is ill-conceived.  According to the Alliance for American Manufacturing, the sector generates $1.6 trillion annually, or 12 percent of gross domestic product, nearly three-fourths of the nation’s research and development investment, two-thirds of the nation’s total export of goods and services and employs over 20 million Americans. America’s industrial base is also instrumental in supporting the nation’s national security apparatus.

But, American trade policies, modeled on the idea that trade will create opportunities in other industries, are killing the nation’s once-thriving sector.  According to The American Prospect, since 2000, the U.S. has lost 5.5 million manufacturing jobs, with 2.1 million jobs lost in the past two years.

The American Prospect also estimates that, since 2001, 42,400 American factories have closed their doors, with roughly three-fourths of those employing over 500 people while they were in operation.

Oftentimes, those factories move to China, India or Mexico, taking their R&D with them.  Manufacturing and R&D are intertwined, and many American companies are moving both overseas.

Gomory’s view is that the only way to reverse this devastating trend is by drastically reducing American’s trade deficit by providing manufacturers with incentives to produce domestically.

“We need to do more than produce exciting new ideas; we must also be able to compete in large productive industries,” he writes.  “This requires us to both balance trade and to motivate our corporations not only to innovate, but also to produce in this country.”

China is our life support. At the same time they are the ones killing us. We are in major debt with China, and it's not like we can just borrow money from someone else. We shouldn't have borrowed money from any country. Now we have a huge debt with China, and they are getting all of our jobs. I don't see Obama putting a stop to this, even though he blamed George Bush this exact same thing. It's always easier to criticize others. Especially when you're just sitting on the sidelines watching.

 

What country are you from? All Americans should be actively involved in our economic issues. Only those not in or of the US or China are sitting on the sidelines.

 

It is game over if oil producing countries start demanding Euros rather than dollars like Iran and Venezuela are trying to do. Then China would have little need for dollars and hence stop selling us the products. Then we will be in a pickle.

 

Any intellectual property that has economic value will end up in China where the products will be bootlegged (if necessary) back to us. There is little point in coming up with new ideas if those ideas are going to be stolen before the inventor can capitalize on them.

 

i run my own business, and i have to work up to 60 mhrs a week to keep up. i don't have time to inovate and R&D. i'm too busy trying to make payroll and taxes to worry about innovation !! our goverment sold us down the river, and now wonders why we can't make enough ores !!!!! tomt

 

We Tax Labor at the low end 15%. That is a reverse tariff. We should tax consumption. That would even it out a bit. Of our debt, $ 2,500,000,000,000 is owed to this fund. Thats three times what we owe China. We're smarter than that. Relieving that tax and finding a solution to high healthcare would really sharpen our edge. I keep thinking how cool it would be to set up large cruise ships (ala Carnival) as floating hospitals. Fill them with doctors from around the world and float them in and out of our major ports. Maybe one could specialize in Knee and hips, another in bypasses. $4,000 for the operation, $1000 for a week of rehab. Setup our nursing homes in mexico and the carribean. while we're at it, we could probably outsource our prisons to, hell fill some boats with lawyers from around the world. Now we're cooking.

 

"Be innovative" is like "Be happy" - that is just words unless actions are taken to get there. Serious innovation is needed in Manufacturing such that we can stay two steps ahead of our competitors. Unfortunately I have never seen a requirement where a company hires innovative people. They mostly focus on old methods called "best practices". Therefore we rarely produce any innovative products let alone manufacture them.

I was chided by recruiters when I had words like "innovative" and "disruptive ideas" in my resume - even though they were backed up by experience.

 

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This Work, Innovation Cannot Sustain the Economy , by Dustin Ensinger is licensed under a Creative Commons Attribution-Share Alike license.

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