Who Stole the American Dream? (52 page)

To the free market thinking that has dominated our politics and our economics for three decades, the Grove-Spence approach is anathema. Market advocates reject the very idea of a national economic strategy as heresy. Government involvement in the economy, they argue, amounts to Washington’s picking winners and losers. That, they contend, is un-American. It goes against the grain of American history.

But that’s not really true.

The Founding Fathers, and many other American presidents from both major political parties, have favored what other nations call an “industrial policy.”

Not only did George Washington make a point of wearing an American-made suit for his inauguration, when British tailors were reputedly the world’s best, but he advocated a government plan to promote domestic manufacturing against British imports.

In his first annual address to Congress on January 8, 1790, Washington emphasized in words that resonate today: “A free people ought not only to be armed but disciplined … and their safety and interest require that
they should promote such manufactories as tend to render them independent of others for essential, particularly military, supplies.”

Washington’s Treasury secretary, Alexander Hamilton, promoted high tariffs and “buy American” policies, endorsed by Washington. Thomas Jefferson, the Virginia plantation owner who was originally an agrarian foe of merchants, switched to Hamilton’s view after the British sacking of the nation’s capital during the War of 1812. That war, Jefferson wrote to a friend, had showed “that
manufactures are now as necessary to our independence as to our comfort.” He argued that American industry needed support, contending that “He, therefore, who is now against domestic manufacture, must be for reducing us either to dependence on that foreign nation, or to be clothed in skins, and to live like wild beasts in dens and caverns.” Presidents James Madison, James Monroe, John Adams, and John Quincy Adams, holding similar views, supported subsidies and tariffs to promote domestic industry.

In fact,
American history is replete with examples, from the Erie Canal to the transcontinental railroad to the
Apollo
moon project to the Internet and the GPS, where the government has backed economic and industrial projects to build the nation’s transportation backbone or to create new technologies to enhance America’s competitiveness and then has handed them off to the private sector.

In 1842, Congress awarded Samuel F. B. Morse a $30,000 appropriation to test the feasibility of an experimental telegraph line, and another $10,000 in 1843 to lay a telegraph line from Washington to New York via Baltimore and Trenton, New Jersey. In 1862, Abraham Lincoln got Congress to pass the Pacific Railroad Act, which made huge land grants to railroads that became the springboard for America’s astonishing economic surge in the late nineteenth century. Nearly a century later, in response to the Soviet
Sputnik
space shot, Dwight Eisenhower got Congress to vote funds for a nationwide highway network that still serves us today. The nation’s space program, which Eisenhower launched and nine other presidents kept going, generated many of the technologies that led to America’s supremacy in aerospace and computers.

Even Ronald Reagan, despite his mocking remark that “government is not the solution; government is the problem,” used governmental power to bolster U.S. industry. When Japanese computer firms threatened American computer chip makers in the early 1980s, the
Reagan administration put political pressure on the Japanese government to guarantee U.S. firms a 20 percent share of the Japanese market by initiating an unprecedented trade case against Japan. Reagan persuaded Congress to approve the government’s investment of $1 billion in Sematech, a new public-private partnership with a dozen computer companies,
to create “precompetitive” technologies to keep America’s high-tech industry in the vanguard and to prevent the Pentagon from becoming dangerously dependent on foreign suppliers for components of military weapons systems.

Reagan also moved forcefully to protect America’s automakers. When Toyota and Honda made deep inroads into the U.S. car market, Reagan forced a 40 percent devaluation of the dollar, making Japanese imports much more expensive. Then Reagan pressed Tokyo to accept quotas on Japanese auto exports to America and pushed Japanese automakers to set up assembly plants in the United States to generate jobs for American workers.

So there was ample precedent for Barack Obama to extend an $80 billion rescue fund to General Motors and Chrysler during the economic collapse of 2008 with funds that George W. Bush had gotten from Congress to rescue Wall Street banks.

In short, contrary to modern right-wing political rhetoric, presidents of both parties have used government funds and authority to protect American industry and have poured hundreds of billions of dollars into the nation’s transportation, communications, and financial systems. They have fostered the development of new technologies since the dawning of our Republic, though Americans have often remained unaware of the government’s role in what are marketed as private sector innovations.

As CEO of Apple, Steve Jobs won a deserved reputation as the creative and entrepreneurial genius behind many groundbreaking products. But as former Reagan administration trade negotiator Clyde Prestowitz observed, “
Virtually everything Jobs has developed—the mouse, Mac/Windows displays, operating systems, touch screens—began in or received support from a government office.”

That is hardly surprising since federal agencies such as NASA, the Departments of Defense, Energy, and Agriculture, the National Institutes of Health, and the National Science Foundation are so large and spend so many hundreds of billions of dollars a year in the economy that there is no such thing as a free market without government influence. Without announcing it, the United States already has a de facto industrial policy—in effect, picking winners—by pouring life-blood into such huge contractors as Boeing, Lockheed Martin, United Technologies, IBM, Microsoft, Intel, Apple, and hundreds more.

So the question now is not whether, but how—how should the existing influence of government be used most effectively to help the private sector revitalize our economy, to share the economic gains more widely, to create millions of jobs for average Americans, and to make our nation more globally competitive again?

Corporate CEOs such as Jeffrey Immelt of General Electric, Andrew Liveris of Dow Chemical, and former Intel CEO Andy Grove, as well Nobel Prize–winning economists such as Michael Spence, Joseph Stiglitz of Columbia, and Paul Krugman of Princeton declare that we must urgently restore the nation’s industrial strength.

“The United States became the world’s largest economy because
we invented products and then made them with new processes …,” asserted MIT president Susan Hockfield. “Today, our most important task is to restart this virtuous cycle of invention and manufacturing….
We need to create at least 20 million jobs in the next decade to offset the effects of the recession and to address our $500 billion trade deficit in manufactured goods.”

The key, these corporate leaders and economists contend, is to reestablish vital connections in our economy in order to reinforce the crucial ways in which America’s genius at innovation translates into economic growth for the nation and job growth for the middle class through large-scale production, which then powers the next generation of innovation, production, and job growth.

The dynamic interaction between innovation, production, and job growth in America was disrupted, they say, when major U.S. multinationals moved overseas the mass production of commodities—from computer and aircraft components to auto parts, appliances, and cellphones—to places like China. “Not only did we lose an untold number of jobs,
we broke the chain of experience that is so important in technological evolution,” cautions Andy Grove. “Abandoning today’s ‘commodity’ manufacturing can lock you out of tomorrow’s emerging industry.”

As the United States looks ahead, many economic analysts see valuable lessons in Germany, the linchpin of the euro zone, over the last two decades. Germany’s response to the challenge of globalization and low-cost competition from China and Asia has been different from ours, as we saw earlier, and its outcome has been better.

Since the mid-1990s,
the German economy has grown faster than the U.S. economy, and its middle class has shared more of the gains. Since 1985, Germany’s average wage went up nearly 30 percent versus only 6 percent in the United States. In foreign trade,
Germany generated $2 trillion in trade surpluses from 2000 to 2010, while
the United States racked up $6 trillion in trade deficits. So today,
Germany still has twice as many people working in manufacturing as the United States—21 percent of its workforce to 9 percent of ours.

“
The German model shows that a developed country can remain competitive even in a world where new economic giants, such as China, India, and others, are emerging,” observes Wall Street investment manager Steve Rattner. One reason is that German consumers import less than half as much, per capita, from China as Americans do, and German industry, with its
marquee brands and precision machine tools, exports more successfully. BMW, for example, makes 25 percent of its profits selling luxury cars in China.

But what explains Germany’s so-called economic miracle is a social contract that brings together business, labor, and government working for the nation’s benefit. “It isn’t a miracle,” former German economy minister Michael Glos explained. “It’s because we stuck to manufacturing whereas other countries de-industrialized”—moved into services and shifted their production offshore.

Klaus Kleinfeld, former CEO of the German electrical giant Siemens and now CEO of Alcoa, asserts that the key ingredient of Germany’s success is “
the social contract, the willingness of business, labor, and political leaders to put aside some of their differences and make agreements in the national interest.”

Trade union leaders sit on the supervisory boards of major firms such as Volkswagen, Daimler, and Siemens, positioned to persuade management to keep the highest value-added work in Germany. As a trade-off, unions have eased demands for pay increases.

“To keep work at home,
German unions also agreed to continual productivity and efficiency increases,” noted commentator Harold Meyerson. “They can afford to do this because, as is not the case in the United States, such increases don’t necessarily mean their members will be sacked.”

In fact, during the 2008 economic collapse, big
German companies adopted a “short work” policy to spread the pain of recession. Instead of laying off masses of workers, German companies shortened
everyone’s workweek, saving five hundred thousand jobs, so Germany’s unemployment rate went down during the recession while America’s rose sharply and stayed high.

Reclaiming the American Dream will not be quick or simple. We have
a long-term structural jobs problem that demands new thinking and an ambitious new economic agenda. Hence the call from the Horizon Project CEOs for a domestic Marshall Plan. What they advocate is a government-led industrial policy focused on generating millions of new jobs, exporting more products, modernizing our infrastructure, making our tax laws smarter and fairer, restoring America’s manufacturing at home, and legally challenging or retaliating against China’s unfair trade practices.

From their thinking and that of others, here are ten steps for reclaiming the American Dream.

Step #1 is to form a new public-private partnership to
modernize America’s outdated transportation networks and create five million jobs—and maybe many more—with major investments over the next decade. Follow the model of President Lincoln, who used government aid to promote and subsidize the transcontinental railway, or President Theodore Roosevelt, who built the inland waterways, or President Dwight Eisenhower, who fathered America’s modern interstate highway network.

Wall Street is reported to be eager to invest in infrastructure projects if the government puts up seed money. That plan wins
backing from such traditional political adversaries as the U.S. Chamber of Commerce and the AFL-CIO. It wins bipartisan endorsement from
politicians like New York mayor Michael Bloomberg, Texas senator Kay Bailey Hutchison, and former California governor Arnold Schwarzenegger, all Republicans, and Democrats such as Senators John Kerry of Massachusetts and Mark Warner of Virginia and former Pennsylvania governor Ed Rendell.

The U.S. Chamber of Commerce estimates that America’s faltering infrastructure costs the United States $1 trillion in economic growth and hampers U.S. exports. In world rankings of infrastructure,
the United States has fallen from No. 1 to No. 15. Not only do we have sixty-nine thousand structurally deficient bridges, but our national rail network has such serious bottlenecks that it takes a freight train longer to get through the city of Chicago than it does to go from Chicago to Los Angeles. In high-speed rail development, China is outspending the United States $300 billion to $10 billion. Our aviation control system is so outdated and overloaded that the Federal Aviation Administration predicts it “will reach total gridlock by 2015” unless it is urgently modernized. Our ports are overloaded. Our highways are clogged. In 2009, Americans wasted 4.8 billion hours and 3.9 billion gallons of fuel sitting in traffic at
an estimated cost of $115 billion.

Leaders from both parties as well as business-oriented task forces advocate responding to this challenge with a national infrastructure bank to spark the financing of a ten-year plan to improve our ports, airports, and commercial and commuter rail systems, as well as our bridges and highways. Because of current low interest rates and high unemployment, one economic study pointed out that
it will “never be cheaper” for the nation to undertake a major infrastructure push because “capital costs are now at historic lows … and labor is in abundant supply….”