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The U.S. Needs an Industrial Policy
Sunday, April 18, 2010@ 3:38 PM
Author: Press

The U.S. Needs an Industrial Policy

The rest of the world actively promotes its core industries. It’s time we did too.

By JOHN HOFMEISTER

Much is being said about the terrible financial returns and lack of economic growth in the “lost” decade that began the 21st century. Why should anyone be surprised?

As a nation we’ve been driving toward this no-growth plateau for several decades. As manufacturing has shrunk, we’ve honored the gods of “rationalization,” “restructuring,” and the almightiest of all, “globalization.” Core industry after industry has orchestrated its own decline, facilitated by short-term managerial reward systems.

The next decade could see negative growth thanks to our foolhardy fondness for “free market” philosophies that tell us it’s OK to export all our jobs. The U.S. is down to four world leading industries: entertainment, out of Los Angeles (heavily indebted to Democrats); information technology, out of the Bay Area (likewise); energy, out of Houston (heavily indebted to Republicans); and financial services, out of New York (indebted to both parties). That’s it, folks. We’re otherwise second- or third-rung suppliers across the range of manufactured products—except for biotech, a small industry—and we can still (mostly) feed ourselves. Even aerospace has suffered.

Let’s acknowledge the parasitic legal industry’s role in eroding America’s manufacturing strength. Some argue that the U.S. leads in innovation and entrepreneurship. If so, where are the jobs and value creation?
It wasn’t always this way. For the first three decades after World War II, the U.S. led the world in manufacturing. From mining to materials to mechanical, electrical and electronic products, from textiles to footwear, autos to airplanes, furniture to food, U.S. manufacturing filled our households with self-made products and elevated the standard of living for most to unpretentious comfort.

Services grew out of the successful manufacturing base because we had it. Prosperity seemed endless until we started “rationalizing,” shipping jobs overseas to build supply chains that enlarged growth prospects everywhere but the country of origin.

And while the U.S. worshipped the free market, especially unrestrained freedoms to cut labor, the rest of the world didn’t. Other countries saw the wisdom of protecting jobs and people. They erected barriers and social programs that hardly exist in the U.S., while adding government-sponsored manufacturing incentives.

Services are just as vulnerable to the free labor market, only it’s called “outsourcing.” America needs manufacturing jobs for skilled, semi-skilled and low-skilled citizens. We need their wages circulating in the economy for sustained growth.

As we look ahead, the current Democratic majority is locking the government’s incisors into the neck of two of our four industries: energy and financial services. The antihydrocarbon and antinuclear crowds are making it virtually impossible for the producers of 93% of the nation’s core energy to expand or grow (coal, oil, gas and nuclear) while helping venture capital friends in Silicon Valley expand 2%-3% of our energy base (wind, solar and biofuels) with virtually free taxpayer money.

How long Houston can hang onto world energy leadership is being actively discussed in, yes, Houston. The financial services industry, in the aftermath of its inexcusable greed and manipulation of trust, is about to get regulated in ways that will drive it to impotence, sending the core strength of yet another historic U.S. industry elsewhere. Where? Probably not Europe, or Japan. More likely it’s China.

So then there will be two. Two world-leading industries in the U.S., entertainment and information technology. For how long? Entertainment is ever more virtual and universal. China, Korea, India and Japan are after Silicon Valley’s infotech dominance day after relentless day. And those countries create the government policies that help and protect those efforts.

The administration is worried about jobs in the runup to the fall elections. Every incumbent should be. Where to stimulate job creation should be as obvious as the cosmetic smile on an elected official’s face: manufacturing. Go where we’ve been.

Since government is involved anyway, let’s shift it from disablement to enablement. Create manufacturing incentives like other governments do. Lower repressive corporate tax structures, accelerate depreciation, defer income and inventory taxes, tax abate existing and new jobs, pay for worker training, incentivize new, and the conversion of former, manufacturing sites.

We’ve never systematically used government incentives to help U.S. industry compete across the board. It’s time we did, like everyone else. Use the unspent hundreds of stimulus billions to create millions of competitively priced manufacturing jobs in America. We’ve never had more people available, ready and willing to work. Let’s practice the “globalization” we taught everyone else.

Mr. Hofmeister, former president of Shell Oil Company, is founder and CEO of Citizens for Affordable Energy, and author of “Why We Hate the Oil Companies: Straight Talk from an Energy Insider,” due out in May by Palgrave Macmillan.

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