Here in the United States, we talk endlessly about the importance of free trade and of government not interfering with the market. But while we are talking, other nations are busy subsidizing and building up key sectors of their economies, and in this process destroying key sectors in our own economy. These nations have grasped the obvious: that a country which leads the world in the most productive sectors of the economy will be rich, while countries that are confined to what is left will be poor. And while this is going on we continue to pursue more "sophisticated" but misleading ideas like comparative advantage.
We have too many people today who see in the destruction of our key industries by well-organized and highly subsidized actions from abroad nothing more than the effect of free trade and the operations of a perfectly free market. This is a delusion and a dangerous one. We also have an elite industrial leadership that too often sees itself with no other duty than maximizing the price of their company's stock, even if that means offshoring the capabilities and know-how for advanced production to other nations that have no free markets themselves.
Our Nation's Failure
Although I have just named foreign subsidies and American corporate leadership as part of the problem, the heart of the problem is the lack of leadership from our own government. Despite the importance of economic progress, our government, unlike many others, has no clear economic goals for our nation. But economic progress is essential, and to make that progress in today's world we need economic goals that we steadily pursue and support.
I believe that our government should visibly and clearly adopt two national economic goals:
(1) To be a productive nation steadily growing a large per capita Gross Domestic Product (GDP).
(2) To share widely the prosperity made possible by that productivity.
Both are essential and measurable goals. By adopting and pursuing these goals our government can visibly align itself with the interests of the American people.
The Role of the Corporation
The principal actors in attaining these economic goals must be our corporations. But today our government does not ask U.S. corporations, or their leaders, to build productivity here in America; much less does it provide incentives for them to move in that direction. Rather, our government, captured by the delusion that they are watching free trade and free markets at work, has too often simply stood by and allowed one-sided destruction to go on.
They do not realize that the corporate goal of profit maximization at all costs does not serve the interests of the nation. They do not realize that the fundamental goals of the country and of our companies have diverged. The sole focus on profit maximization, which leads to offshoring and holds down wages, does not serve the nation. This must change. And it must change before the damage to our economic ability is irreversible. And, in light of the recent Supreme Court decision on campaign financing, we must also act before the increasing influence of global corporations on our government becomes irresistible.
We must act to realign the goals of company and country.
Reward Productivity and High-Wage Jobs
I am not suggesting that our government step in and run our industries. What I am suggesting is that we need economic goals. Then, given those goals, we should reward those corporations that, acting freely and competitively, contribute strongly to those goals, productivity in America being high among them.
Our government should not pick companies to favor; I do not think we have the history or inclination to do what some countries can do successfully, which is to pick and sustain national champions. Rather we should use traditional means to directly serve national goals.
For a long time we have used the corporate income tax rate to spur R&D in any company. Building on that familiar approach we could, for example, use the corporate income tax rate to reward any corporation, large or small, that maintains high-value-add-per-U.S.-employee. These companies are the strong contributors to GDP per capita. Many variations on this approach are possible, including many that are revenue neutral, but the essential point is to use corporate tax rates to reward the corporations whose actions support national goals. We do not select national champions; rather, we reward any entity that contributes strongly to the national goals. If we can agree on goals, enunciate them, keep them in mind and measure them, we will find many ways to provide rewards to corporations that contribute to those goals.
Some nations target the growth of specific industries that are productive. But let us go one better and make our country a place where any productive entity is rewarded. Much of manufacturing has the high productivity that will earn it incentives under this approach. We should clearly reward productive manufacturing and end this endless discussion about whether we do or do not need manufacturing. But we should also reward intelligent users who use tools and ingenuity to become more productive in whatever they do.
We should make sure that in our country productivity and high-wage jobs in the United States become the path to profitability.
One unpleasant aspect of reality is that we cannot have success with any real economic policy, if we do not balance trade. Foreign governments can be extreme in their quest for dominance in specific industries. And we see every day the destructive effect of their actions.
By balancing trade we guarantee that any inflow of goods is matched by an equivalent export of goods made here in the United States. Balancing trade, coupled with rewarding productivity, will move us a long way toward ending both the one-sided destruction of industry by subsidized competition with its consequent loss of jobs, and the growth of our indebtedness to other nations. And this indebtedness leads to a diminution of our actual independence and of our ability to control our own future.
There are many ways to approach the balance of trade. Many measures have been discussed. Prominent in these discussions is the need to obtain a realistic exchange rate. Clearly, major movement in that direction would serve our national goals. However, other nations - China is the best example - see it in their interest to have their currencies undervalued and hence their products underpriced. Years of talks with China with no results should make clear to us that the exchange rate is something we do not control. We should realize that the approach of trying to "level the playing field" may simply not apply when we are dealing with countries that work hard to keep the playing field slanted in their direction, and when they have many ways beyond the exchange rate to do just that.
We may very well need to tackle the trade issue in the direct and head on way that Warren Buffet suggested in his insightful Fortune article in 2003. In this article he described his Import Certificates plan. The Buffet plan is something that we can carry out without the agreement of other nations, and it is something that would actually balance trade. The time has come to take this plan seriously in place of the endless talk that only postpones the day of reckoning.
The Moral Dimension
And let us not neglect the moral dimension. Let us make it right and admirable for corporations to consider high wages for Americans as part of their job, and for outstanding products to be something in which they take pride. Those who cannot remember may think I am dreaming, but I am not. Until the 1980's the dominant view of the role of corporations was the stakeholder view, which included, along with profits, all the considerations I have just named and more.
The time has come for us to shake ourselves free from the delusions that shackle us; let us act before it is too late. Let us urge government to visibly announce and then support and measure goals of productivity and widespread prosperity. Let us reward those who provide high-wage employment in the United States. Let us urge on our government the necessity of balanced trade, and let us do that in spite of the cries from those who currently find it more profitable to participate in and develop unbalanced trade. Let us all in our various ways start to clarify the role of the American corporation and find ways for our companies to serve not only shareholders, but also their employees, and the nation. Let us act before it is too late.