AUG. 20, 2014 -- Twenty five years ago, I noted my friend Walter in California producing electronic equipment was doing well on Wall Street so I called: "Walter, on your next expansion, I need a plant in South Carolina. We are losing the textile industry and anywhere you want to put it in the state will be fine."
Walter replied," I'm not producing in the States, but in China. With no capital costs, I rent the building from year to year; put a quality control guy to oversee production, no labor, health or environmental worries. I just check with my guy every day and I can get in nine holes of golf."
This is the competition in globalization - plus. If you want to sell in China, you've got to produce the article in China. China subsidizes its manufacture, takes your technology, alters it slightly, patents it and the China article becomes the article in trade. Earlier Japan closed its market, subsidized its manufacture, and sold its export at cost - making up the profit in its closed market and putting General Motors into bankruptcy. China and Japan set the competition in globalization with their controlled capitalism; not "free trade" United States. In globalization, David Ricardo's Comparative Advantage is controlled capitalism.
The 1 percent in the stock market is getting rich while the rest of the country goes broke. Wall Street, the Big Banks and Corporate America want to keep the offshore profits flowing, so they contribute to the President and Congress to do nothing - to not make it profitable for Corporate America to produce in America; to not enforce our trade laws; to not protect the U.S. economy.
Two years before the Constitution, and four years before Madison's First Amendment Rights, our Founding Fathers moved to protect our economy with the Tariff Act of 1787. Now comes Walter Isaacson in Time (8/25/14) stating: "Growing inequality - of income, wealth and opportunity - is the economic, political and moral issue of our time." But Isaacson never mentions the cause of the inequality - the offshoring of our innovation, research, technology, production, jobs, and payrolls - our economy.
To correct the inequality, Isaacson only suggests a Teddy Roosevelt "barnstorming the country for a 'square deal'; "to protect the environment and preserve nature." Isaacson knows Wall Street, the Big Banks and Corporate America pay the President and both parties in Congress to do nothing to disturb the flow of offshore profits; to do nothing to build and protect the economy; to have the nation not compete in globalization. Walter Isaacson knows what's going on and ought to be ashamed for not telling it like it is.
It's tough to meet the competition of controlled capitalism. We don't want to lessen our health, safety and environmental provisions but we are fortunately in place to make a strong inducement for Corporate America to produce in America by eliminating the tax on profits, both domestic and foreign. Replace the 35 percent Corporate Tax with a 7 percent Value Added Tax - half the average of the 160 countries competing in globalization.
The VAT is rebated on exports. The Corporate Tax is not rebated. This tax cut releases $2 trillion in offshore profits for Corporate America to repatriate tax free, create millions of jobs and build the economy. Competing in globalization is not an option but mandatory. A nation needs both a strong defense and a strong economy. In foreign policy, the economy and our democracy take over from the military.
We've got to stop crying "Free trade!" and meet the competition. Living on imports, we'll lose our democracy. We must protect fundamental production like President Reagan did in 1984 for steel, motor vehicles, computers and machine tools. We must stop buying helicopters from Russia and enforce the Defense Production Act of 1950. We must give Corporate America certainty that our trade laws against closed markets and predatory practices will be enforced. Economists measure a loss of 9,000 jobs for every $1 billion in the deficit in the balance of trade. Last year, the U.S. had a deficit of $471 billion in the balance of trade, losing 4,239,000 jobs. Like President Nixon in 1971, we should put a surcharge on imports to lessen this loss of jobs.
in America is that the most competitive people have a government in Washington
that's not competing.
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).
© 2014, Ernest F. Hollings. All rights reserved. Contact us for republication permission.
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