Robert Kutner: In the post-pandemic era, we need "Made in America" (II)

Introduction: Robert Kutner, founder, co-editor of American Outlook and professor at Brandeis University, published an opinion article in the journal on May 19, 2020: "In the post-pandemic era, we need "Made in America"", the translation is divided into two parts, and this article is the second part.

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Reviving the general model of U.S. manufacturing

In fact, even if China has no intention of achieving global economic leadership through strategies such as "Made in China 2025" and the "Belt and Road Initiative" that involve large-scale government investment, the reasons for the United States to restore its former manufacturing power are very strong. China's rise has only made america's need to achieve that more urgent. China's emphasis on state-owned capital allows the country to plan its economic development over the long term, targeting and committing to dominating one new technological field after another; the United States relies too much on reliance on distorted market signals from Wall Street, which has put the United States at a disadvantage in industrial development. As China becomes an infrastructure provider for developing countries, the geopolitical and geoeconomic influence of this new role on China is becoming increasingly prominent.

Robert Kutner, founder and co-editor of American Outlook and professor at Brandeis University, published an opinion piece in the journal on May 19, 2020: "In the post-pandemic era, we need 'Made in America'", the translation is divided into two parts, and this article is the second part.

After the first wave of manufacturing shifts, economists Stephen Cohen and John Zysman from the University of California, Berkeley, co-authored the 1987 book Manufacturing Matters: The Myth of the Post-Industrial Economy. Now it seems that this book is quite predictable about the trajectory of the US economy in the future. In the book, they point out that manufacturing can not only provide jobs for society, but also a large manufacturing enterprise can also play the role of a regional economic stabilizer.

Today, in 2020, the manufacturing industry has become an entry ticket for a country to master the advanced technology of the future. After all, engineers are innovating not far from the production hall. If the United States loses its manufacturing capacity for machine tools, semiconductors, solar panels, or telecommunications equipment, a mercantilist rival like China will not only become a dominant manufacturing power, but also a global leader in technological innovation. If the U.S. government does not intervene, the United States will no longer be eligible to compete with China.

In the decades since Stephen Cohen and John Chisman published that monograph, U.S. trade conditions have grown from a slight surplus of $16 billion in 1975 to a severe deficit of $578 billion in 2019. In the field of high-tech products, it has developed from the basic balance of imports and exports to a deficit of 132 billion US dollars. We have lost manufacturing technology and manufacturing capabilities in a large number of industries. In the presence of the U.S. Trade Representative, some lobby groups argue that the United States should no longer manufacture nylon socks, wedding dresses, or even print the Bible, all of which are the oldest Western traditions.

In the post-pandemic era, the U.S. economic maneuvers should focus on restoring manufacturing strength. Just as the Defense Advanced Research Projects Agency once played the role of a state-owned investment bank in the field of dual-use technologies, the U.S. government should play a leading role in industrial development. In fact, the U.S. government was already doing this during World War II. This time, though, the U.S. government's main goal should be to prevent Beijing from dominating the development of many emerging technologies through "Made in China 2025." If Wall Street continues to sell out its national interests in the future, the U.S. government should, as the Reconstruction Finance Corporation did during the Great Depression and World War II of the last century, take stakes in high-tech companies and place civil servants on the company's boards. On this basis, employee representatives will be able to play the icing on the cake.

On the face of it, laissez-faire is an unofficial ideology of laissez-faire that opposes the creation of large "national champions" such as Siemens in Germany, Huawei in China or Airbus in Europe, and it's up to the market to decide. However, there is an argument to the contrary that is difficult to refute. Boeing is already in serious trouble with catastrophic management issues that have arisen on the 737 MAX model. Since the U.S. government is doing its best to ensure Boeing's solvency, in exchange, Boeing should allow the U.S. government to gain a controlling stake in the company. As a private enterprise that relies heavily on Wall Street, Boeing's performance has been extremely bad, and it is believed that Boeing will only get better after becoming a state-owned enterprise.

We've seen so many U.S. companies get bailout money and don't know how to make better use of them in addition to buying back shares and dividends. This suggests that the "market" doesn't perceive productive investment opportunities in the private sector. However, there is no shortage of such investment opportunities in the U.S. economic system. This is why the United States urgently needs to change the lack of state-owned capital.

From the managed economy to the green economy

Changing the U.S. state capital deficit should coincide with infrastructure modernization and the transition from existing economic models to a more resilient circular economy model, both of which are long overdue. According to an assessment by the American Society of Civil Engineers, the funding gap for updating the nation's infrastructure is about $4.5 trillion. The sponsors of the U.S. Recovery and Reinvestment Act of 2009 claim that the stimulus package is "timely, targeted, and temporary," so our new green investment initiative should be well planned, transparent, and permanent. The current covid-19 crisis has brought the labour market to a near-collapse, but it also provides an excellent opportunity to implement a green stimulus package. The Government's push during the Great Depression of the last century to build the Hoover Dam and the Golden Gate Bridge was not aimless, and today we can also convert idle resources into the infrastructure that society needs.

Since taxes and public debt can be used to serve society, it makes sense to be used to create jobs. However, under some trade rules, such practices are often seen as "illegitimate favoritism." For the sake of America's national renaissance, we can ignore such rules. We could have reached a new trade deal with the EU, which shares our views on the mixed economy. As for China, which has a poor record on issues such as human rights, labor rights and intellectual property protection, it must accept offsetting tariffs and regulations. For example, no U.S.-based company should comply with China's mandatory technology transfer regulations, and U.S. companies will no longer be allowed to do so.

In order to initiate public investment at the national level and drive a green transition to the economy, we also need to free U.S. economic policy from the shackles of the economic mindset that has proven wrong. "Efficiency" is a word that people like to hang on their lips. Recently, as the US media has focused on the fragility of supply chains, more and more people have admitted that "the United States pays too much attention to the efficiency of supply chains and ignores the resilience of supply chains", pascal Lamy, former director-general of the WTO, said at a recent conference hosted by the OECD and the Open Market Institute.

However, the concept of "efficiency" is inherently problematic. In my 1996 book Everything for Sale: The Virtues and Limits of Markets, I pointed out that the concept of "efficiency" can be explained in three ways: first, Adam Smith's "efficiency," which is based on supply and demand; second, Keynes's "efficiency," which is different from Adam Smith's "efficiency" when the economy is in a downturn. Concepts are conflicting; third, Schumpeter's "efficiency," in which he argues that innovation is the source of the driver of economic growth in the long run. In fact, China completely ignored market price signals when participating in the global competition for scientific and technological innovation and economic growth, and the United States did the same during World War II.

Furthermore, standard descriptions of "efficiency" often do not take into account trillions of dollars in losses caused by wrong market prices, as was the case with climate change, the Great Depression of 1929 and the global financial crisis of 2008. The person defining "efficiency" in this way is actually assuming that there is no official corruption, no market power, no economic power, and no political forces that make the rules. So often when people talk about "efficiency," they're actually pandering to the concept of "elasticity," which is ridiculous and contrary to historical facts. Now it's time to abandon the concept. After the Great Depression, the Keynesian Revolution, and the establishment of the Bretton Woods system, we thought we could solve the problem once and for all, but this was not the case.

After World War II, the United States, Europe, and most Third World countries showed a relatively benign economic nationalist mentality: even if the Marshall Plan included state-owned banks and state-owned enterprises, the United States would not have any objections; even if one country prioritized its own suppliers in order to create jobs, other countries would not oppose it; even if the United States would produce commercial value in military technology fields such as jets, biotechnology, and computer networks in the Cold War, it would not be rejected. But when did U.S. officials lose their ability to think under the erosion of Chicago School economic ideas, and then they abandoned the "third way" after being bought by the Wall Street lobby and turned to the ridiculous "perfect market."

At the same time, U.S. officials have given the green light to Chinese, who believe that there is nothing wrong with Wall Street and large American companies sharing their share in dealing with Chinese. We must oppose this approach, and the postwar social contract should have a modern version of the 21st century, which is that we should leave enough room for national policy.

We may soon enter an era powered by renewable electricity. But the current market price still reflects too much fossil energy trading. Only through government regulations and subsidy policies can we shift the economic system from relying on fossil fuels to embracing green energy. The energy of the future will not only be cleaner, but it will also be cheaper and safer to use. Markets often make mistakes when it comes to pricing, which is why we also need government and democratic planning.

We need to develop strategies at the national level to regain U.S. global dominance in advanced manufacturing and green energy. It should be emphasized that in this process, U.S. industry will master new technologies, local small and medium-sized enterprises will achieve development, and U.S. jobs will also grow significantly. We can do it all in one fell swoop. Of course, doing so may run counter to some people's traditional views on free markets and free trade. In fact, it is long past time to abandon those erroneous views.

(Observer.com Ma Li translated from the May 19, 2020 "American Outlook" magazine website, the full text ends)

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