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Wednesday, August 22, 2012

We have to build, not tear down

GEORGE TEMPLETON:
COMMENTARY

By George Templeton
Gazette Columnist
China Nights
 
Twenty years ago we went to lunch with the management of a Communist Chinese company.  We traveled rutted dirt roads, lined with irrigation ditches, rice paddies, farm animals, and little wooden shacks looking much like campground outhouses.  They were actually barber shops, blacksmiths, and farmers’ markets.  A rusted 3 wheel vehicle looking like a cross between a motorcycle and a tractor waddled slowly in front of us towing a small, rickety wooden cart filled with still valued garbage.    Fifteen mph was too much for this bumpy ride.
 
Inside the restaurant, a beautiful young waitress, lacking dental care, tended our meal of eel, brought live to our table to show that it was fresh.   It escaped under our table, causing us to rapidly jump back while the restaurant crew violently subdued the angry critter.

As we left the restaurant, going out into the dirt parking lot, we noticed that the factory executives drove 150 mph V12 Mercedes Benz cars. In China, because of taxes and tariffs, that car at today’s prices would cost more than half a million dollars.  This was in a country where the factory worker rode a bicycle to work through typhoon rain.

Following dinner, we talked about Chinese capitalism.  Our observation was that it had brought the inequality that the Communists had warned about and that we avoided by bending Capitalism to fit our morality.  Today politicians twist morality to fit Capitalism, benefit the wealthy and justify greedy self-interest.

Middling

We created prosperity in emerging countries by outsourcing our jobs, but we must not ignore its consequences. 

In 1955, rural families lacked hot water and indoor toilets and other accouterments, and they did not feel disadvantaged.  Now, the consumption our economy runs on is threatened by more than inequality of wealth and income.  Our values, priorities and politics are dysfunctional.  The politics of anger, hatred, and bitter envy will destroy government, nature, and society to have “more”.

Health, wealth, and opportunity are necessary for prosperity and growth.  Power and freedom are distributed by wealth.  Only a transparent, secular politics will promote broad public goals.  An alarming forty year trend is becoming clear.  It is a result of wealthy, special interest politics, and it threatens the American Dream.  The public must control super-packs and confidential political money instead of them controlling us. 

Released in August, Jacob Hacker and Nate Loewentheil’s Economic Institute Study report Prosperity Economics can be downloaded from the web at www.policy.net.  It provides a big picture view and still dreams the American Dream.

                               Dreaming                            

A young man can have a dream about a better world and improved ways of doing things. 

I referred to my school-books throughout my career.  It is old technology, but so are hammers and nails.  There is a nostalgia associated with books that are old friends, and they bring back memories and feelings.

Our company had a library containing thousands of advanced technical journals and the research work of experts who gave their life and careers to make the jobs of well-paid company employees possible.  The librarians were the first to go.  Then, surprise!  Unannounced to anyone, they were making the library into cafeteria napkins.  The dumpsters lined the hall.  I instructed my crew that now was their chance for free books, but it was too late.  The cost of the floor space had become too great to justify keeping the library.

The dream died on that day.  Yankee ingenuity and the American ethos came to nothing more than accounting.  Private expediency ignored public interest.  Common knowledge and technology drives progress, not just the rich and not just talent.  When value becomes only price, no job, no business, and no industry will be immune to outsourcing.

Reality

We dreamed that global, free-market ideology would lead to a friendly, prosperous, democratic world.  However, developing nations don’t compete, aim for a free market economy, or worry about monopolies.  They target, engage, and exploit to become powerful.  We hoped to export to them but instead were encouraged to shut down capacity at home and move jobs overseas.

Your job could be outsourced if you cost too much.  Middle management, proud to be indispensable, discovered that they were no different than direct labor.  When we relinquish our tools and our industries for cheap products, we lose our ability to innovate.   Because of a lack of regulation, incentives, and the movement of American capital overseas, there is no reason why corporations should invest at home.  The profits are better elsewhere.

What we face is a low cost, high-quality, disciplined, multilingual foreign competitor, trained, educated, and facilitated by us.  Nations target industries for takeover through massive government subsidies, trade, and tax policies.  We have outsourced millions of American jobs since 1975, and they exist in factories larger than many towns.   We let those jobs go for cheap goods, not realizing that we were destroying the synergism that comes from clustering of technical resources and schools and that we are trading our independence and self-sufficiency for complexity and materialism.  No “made in America” corporation can survive for long without the backing of government.  Now that most large corporations have overseas assets, we can expect them to oppose tax and trade policies that are needed to make good American jobs.
Jobs

Unashamed Republicans tell us that the market knows best, self-regulates, and that too much government is the problem.  The opposite is true.

Our government creates both wealth and jobs.  It was government, not private enterprise that built the sewers and water systems responsible for stopping the spread of life threatening illness.  Government built the roads and schools and backed the major technical developments that we take for granted.

Fear, war, and government have accelerated mankind’s progress more rapidly than necessity, the mother of invention.  Defense is an industry of unquestioned American superiority that supports lifestyle-altering research and development. 
If you don’t want airplanes to crash, you should appreciate government promulgation of standards and regulations.  Left to ecstatic marketing, misunderstandings, confusion, crashes, fires, and unreliability would be rampant.

A congressional representative explained, on the unbiased TV channel, that her husband’s snow removal business would be freed by undisclosed deregulation.  It won’t fix our economy!  In semiconductor manufacturing there are many “inconvenient” but justifiable OSHA regulations concerning dangerous processes.  

Big money tries to sway public opinion by focusing on petty annoyances.  
The government’s Small Business Administration supports and participates in the financing of small business start-ups.  Government is responsibility to the consumer and care for ethical, socially responsible businessmen who should not bite the hand that helps them.

Moral Taxes

At the lunch table the talk turned to ways of cheating on taxes.  It was a badge of honor, a sign of a shrewd businessman, to identify ways to cheat and then brag about them.

Our national debt, a result of no-tax ideology, has siphoned trillions of dollars that should have been used for productive private and public investments and created the deficit that we now have to pay down.

Pat Choate, in his book Saving Capitalism recommends sweeping tax code changes that would:

1.        Provide sufficient revenue to fund necessary current and future expenditures.  Pay as you go instead of borrowing.
2.       Rich or poor, everyone pays.  Eliminate hidden overseas tax shelters.   It minimizes tax rates while underpinning our mutual responsibility.
3.       Reduce paper work, complexity, fraud and improve transparency.
4.       Permit no special exceptions and subsidies.
5.       Change tax structure gradually in stages adhering to a stated plan with measurable objectives.
6.       Qualify exporters for benefits under World Trade Organization policies. Produce instead of consuming.  Keep the jobs here.  Target global competiveness and “made in America”, not just cutting taxes.

What kinds of tax systems would satisfy these objectives?  We can choose from the Value Added Tax, Flat Tax, and Fair Tax.  Choate argues that a value added tax would reduce corporate taxes while simultaneously reducing tariffs and the cost of our products abroad.  All would greatly simplify taxes, make jobs exporting, and improve international competitiveness.
Investing

Finance, pension and mutual funds, credit, and insurance, much more than government regulation, govern our lives.

Computerized trading and the internet have led to a hyperactive, unstable stock market.  Certificates fail to foster the moral responsibility that comes from tangible ownership.   Investments are not going to companies.  They go to previous investors through trades.  The derivative and secret, big business 300 trillion dollar “swap” market is “phantom wealth”, not for solid growth.

Finance has replaced manufacturing as America’s dominant economic force.  Even big business CEOs answer to it.  The money industry, obsessed by a gambling culture, staffed by PHD statisticians and supercomputer economists, are insulated from real-world consequences.  Bailed out and immune to the law, they will create another world wide depression.

Republicans argue against Frank Dodd and the Volker rule.  Bankers have their lobbyists, lawyers, and consultants, and they can document how much regulations cost them.  Can they document how much they cost you? 

Now we have the opaque Libor interest-rate fixing scandal.  Banks profited at the expense of customers and financial market integrity.  Add to that, HSBC laundering of drug cartel and terrorist money plus JPMorgan Chase’s 6 billion dollar speculation “oops” and now the Standard Charter Bank’s 250 billion dollar hidden transactions that support the development of the Iranian bomb.

Infrastructure

Now our unmaintained 50 year old infrastructure (roads, bridges, dams, parks, national forests, public transportation, education school facilities, energy, sustainability, water, waste, sewerage, the internet, communications) is obsolete or wearing out.  Notice that these jobs cannot be outsourced.

Funding as a percentage of Gross Domestic Product has dropped by 43 % while our population grew by 66 percent.  Infrastructure requires a food chain to provide needed material.  Consequently, it is more efficient at creating jobs than corporate or individual tax cuts.  When we buy American we get to keep both the material and the dollars.  Infrastructure is an ideal tool to grow jobs but it has been blocked by the Tea-Party House to confound economic recovery and defeat our president.

Education

All Americans who have the ability and desire should get a broad college education and apprenticeship that plans for globalization, job placement and the student’s civic responsibility.  Schools, government, and industry will realize that they are all in the same boat, education is our future, and that we have to build on what we have instead of tearing down.

                      On the Bandwagon                   

The will of the American people is not to make the wealthy richer and the middle-class poor.  It is not to protect businesses that are not competitive.  It is to make jobs for Americans here and overseas, to make taxes and world trade fair, have our dollar fairly valuated, and to return to the surplus that we used to have.

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