JULY 11, 2012 -- After the dismal job report last week President Obama tried to put the best light on it by stating: "We have created 4.4. million jobs in the last 28 months."
Economist Alan Blinder estimated in 2006 that the U.S. would offshore
30-40 million jobs over the next ten years. According to Blinder we could
be losing more jobs than we are creating. We keep bailing the economy
boat with stimulation and ignore the offshore hole in the bottom.
In globalization, David Ricardo's Free Trade Doctrine of Comparative Advantage has been taken over by the controlled trade Doctrine of "Government Advantage." Depending upon a country's industrial policy, everything can be produced everywhere. Globalization is nothing more than a trade war with production looking for a country cheaper to produce. At the end of World War II, Japan's government started controlled capitalism by closing its market, subsidizing its manufacture, selling its manufacture, at or near cost and making up the profit in the closed market.
wanted to make sure Japan went democratic, so they turned a blind eye
to enforcement of trade laws (textiles sacrificed). Today, we have the
skills in South Carolina to make the "ultimate driving machine"
for BMW and Boeing's Globemaster but having lost our textile industry
we still suffer 9.1 % unemployment. Now China has the supermodel of government
controlled capitalism. If you want to sell in China you must produce in
China. If you want to produce in China you must surrender your technology.
In order to get China's favor Corporate America offshores not only its
production and technology but its research and innovation.
No economy can survive in globalization without an industrial policy to build and protect its economy. The founding fathers instituted an industrial policy for the U.S. with the Tariff Act of 1787 - two years before the Constitution of the United States. And our founding father George Washington in his first message to Congress stated: "A free people should promote such manufactories, as tend to render them independent on others for essentials, particularly for military supplies." We still have the makings of an industrial policy with our trade laws.
Obama refuses to enforce them. If President Obama enforced the Defense
Production Act of 1950 like President John F. Kennedy in 1961 we wouldn't
be begging Russia for helicopters for Afghanistan. If President Obama
would enforce the law to protect us from devastating deficits in the balance
of trade, like President Nixon in 1971, we wouldn't have had to bailout
Detroit. If President Obama would protect the production of steel, motor
vehicles, computers and machine tools like President Reagan in 1984, the
U.S. would have 5% unemployment rather than 8.2%. Tax cuts and federal
aid for policemen, firemen, and teachers don't build an economy. It takes
private capital. Industry will invest when the nation has an industrial
policy that promotes and protects its investment.
to an industrial policy is a Value Added Tax that's rebated on exports.
The Corporate Tax is not. The "value added" is measured by the
difference in the cost of parts and materials and the sale of the finished
product, be it wholesale or retail. A 6% VAT would be 6% of the difference
between cost and sale. 150 nations compete in globalization with a VAT
and don't find it complicated, regressive or a money machine. In the U.S.
someone can start production, be making a profit; be paying the 35% Corporate
Tax and the 17% VAT when his exports reach China and before long he will
be facing tax free production from China that will put him out of business.
The VAT is killing manufacture in the United States.
Tax is riddled with loopholes for the multinationals. General Electric
paid no tax in 2010 but small business pays through the nose - 35%. Everyone
in Congress is for tax reform to close the loopholes. I have been through
three tax reforms and we always end up with less revenues. Rather than
waste time with hearings and end up with less revenues, Congress could
eliminate all the loopholes in the Corporate Tax by replacing the 35%
corporate tax with a 6% VAT. This would help small business and release
trillions in offshore profits for Corporate America to create jobs in
the United States. Now we have instant tax reform. The VAT promotes exports
and since it's self-enforcing, we can cut the size of government (IRS).
Last year the Corporate Tax produced $181.1 billion in revenues. A 2011
6% VAT would have produced $728 billion. The VAT tax cut produces billions
to pay down the debt and creates millions of jobs.
the big banks, and Corporate America want to keep the China profits flowing.
They are the biggest contributors to the President and Congress's reelection.
So the President and Congress do everything to favor China's industrial
policy. They not only offshore our economy but the President and Congress
refuse to compete in globalization; refuse to develop an industrial policy
for the U.S.; refuse to enforce our trade laws; do nothing about China's
devaluing its currency; do nothing about China's trade violations; do
nothing about human rights in China; do nothing about China's stealing
our trade secrets, inventions and patents and do everything to favor China,
even exempting China from the oil sanctions against Iran.
China and keep the contributions flowing, the President and Congress even
refuse to cut taxes that would help small business, that would promote
exports, slow the offshoring of jobs, cut the size of government, give
instant tax reform, produce billions to pay down the debt and release
trillions in offshore profits for Corporate America to invest and create
millions of jobs to jumpstart the economy. If we can get the President
and Congress to favor the United States like they favor China we could
head the country in the right direction.
Senator Hollings of South Carolina served 38 years in the United States Senate, and for many years was Chairman of the Commerce, Space, Science & Transportation Committee. He is the author of Making Government Work (University of South Carolina Press, 2008).
© 2012, Ernest F. Hollings. All rights reserved. Contact us for republication permission.
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