January 29, 2012 AT 6:10 pm

Does America need an industrial policy?

Pt 570

Zakaria: Does America need an industrial policy? @ CNN.

[The president]… forcefully in his State of the Union about the importance of reviving manufacturing in America. If you talk with economists they will tell you it’s a very complex problem, involving tax, trade regulatory policy, exchange rates, and educational skills. It is all those things.

But when you move from high-level policy to specific cases, you will often find one element that is rarely talked about: a foreign government’s role in boosting its domestic manufacturers with specific loans, subsidies, streamlined regulations and benefits. In effect, these governments – many in Asia, though some in Europe as well – have a national industrial policy to help manufacturers.

In a front page story last week, the New York Times detailed how Apple’s iPhone ended up being made outside America. The Times wrote about the Apple executives who visited a factory in China to see if it could cut the glass precisely for the phone’s touch screen. When the Apple team got there, the factory owners were already constructing a new wing. “This is in case you give us the contract,” the manager explained.

How could they afford such an extravagant gesture? Well, it turns out, the Times noted, that they received subsidies from the Chinese government. That one incident is part of a pattern.

In 2009, for example, Bridgelux, a light-emitting chip manufacturer in the United States, was searching for a new factory site, the company considered the cost of building in the U.S. and elsewhere. The government of Singapore offered to pay half the setup cost of the plant.

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If there were similar programs in the USA for companies like Adafruit, Makerbot, etc – we could easily employ thousands of Americans, almost overnight. We’ll get there for sure – we must, it certainly seems we’ll get there without any subsidies – time (and the markets) will decide which way works best.

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14 Comments

  1. Excuse me if I vent a little bit. Our industries have already discarded many skilled workers who used to manufacture stuff. Most of those people are no longer available and to train new people to do those manufacturing jobs will not happen overnight. We act like we can just decide to have an industrial policy and all of a sudden we will begin manufacturing again.

    I see many areas where the government can help the individual entreprenuer and small company. The tax code is complicated and confusing. A burden for small companies. Small companies cannot afford medical insurance. Actually, even larger companies may be more inclined to hire more workers and may be more open to things like job-sharing if the benefits didn’t cost so much, a large part of which are medical insurance. Patents are of no benefit to a small company. They just give you the right to sue someone who infringes. Who can afford that?

    Maybe we can examine what can be done to reduce unnecessary burden on the small business.

  2. The problem is that the US government does a horrible job of picking who it gives money to. Look at all the failing alternative energy companies that the government dropped tons of money on. In america I don’t think we can emulate china’s breed of communism… they run their government differently there because their leaders are practically dictators.

  3. I saw a (metal) machine shop that employed 60 people in its hayday. You could practically make anything with it today but I think they were down to 12 employees when I last visited and I wouldn’t be suprised if it was bulldozed to make room for office buildings in order to pay the rent for the brownfield it sits on.

    America doesn’t know how to save money because in one of the last elections they were talking about putting a lock box on social security. Other than selling land or raiding social security, where else do you think the politicians will get their tax money from?

  4. I think the government should give tax breaks, and I don’t mean small ones to companies looking to manufacture in the US. That’s the main reason companies take manufacturing over seas is to keep from getting hammered on taxes if they make a profit. Giving companies breaks to get some momentum and then not plastering them when they do good is a way to keep manufacturing here in America. I mean tax breaks, not living tax free forever, that would be unreasonable.

    I am talking about big companies and little companies that will evolve into big companies if the right doors are opened. The end result is nothing but good for America.

    I think something else that happens is that after giving companies these breaks, they (the government) needs to get their nose out of that companies business. The breaks need to be ‘no strings attached’ breaks. I have honestly never seen anything, and I mean anything, that is government controlled run efficiently or profitable. Let the people with the dreams, visions, and understandings make the everyday and major decisions for the company.

    -Just my humble opinion. :)

  5. Part of the problem is, any tax break or incentive the US government gives, someone else can beat, and they do. They have no oversight or opposition to any kind of handout. At the same time, any US attempt to level the playing field and China threatens trade sanctions.

    That is what happened with the solar industry, the US subsidized companies with loan guarantees, and China went further in their subsidies and drove the US companies out of business. It wasn’t bad choices in companies to help, it’s that China made them into bad choices, and will likely do the same with anything that threatens Chinese industry.

    The US will not take China off favored nation status for the foreseeable future, as they are too big and too big of a market.

    One thing I’d like to hear how it is really possible, is ebay sales of items for under $1 total, with free shipping, shipped from Asia. Even if the item is practically free for the seller, the total price wouldn’t cover domestic shipping in the US. If I was to send a padded envelope to Hong Kong, the cheapest shipping is $6.12. Either there’s a poorly considered international shipping agreement, causing the USPS to eat the domestic part of the shipping, or there are some shipping subsidies happening encouraging them to export to the US. People say it’s the exchange rate, etc, but the money at some point is exchanged back to US dollars to pay the USPS for the delivery.

  6. In fact a postcard to Hong Kong costs $1.05

  7. Note that the US government does subsidized a lot of businesses.
    And corporate taxes are already low, historically speaking.
    And a lot of “goverment assistance” tends to be in the form of “oh, we’ll overlook these safety or environmental or social requirements so you can go about your business.” Which is the kind of thing that eventually gets you on the cover of the NYT.
    Note that some municipalities are starting to crack down on hack spaces. “You mean you have a bunch of machine equipment and the general public in the same place? OMG that’s not to code! You’ll need ADA bathrooms. And a sprinkler system. And I don’t know if that industrial area has had a traffic study for 50-person classes on a regular basis; I think you’ll have to pay for one. And a better parking lot too.”

  8. Perhaps it’s my bias, but I don’t accept the general notion that companies leave the US to escape the heavy burden of taxes.

    With the sorts of figures I see and the bonuses and pay for CEO’s, I have a hard time believing that taxes would shut their company down, or make it overly burdensome.

    I think (generally) the reason why corporations leave the country is because there’s the long standing idea that greed is good and if there’s no law that says you can’t set up a PO Box in Switzerland to avoid US taxes then why wouldn’t you jump at that?

    Closing loopholes like that would go a long way to improving American business, not giving corporations tax breaks that wouldn’t apply as they pay NO taxes right now.

    At least for those mega corporations.

  9. Sorry for the double post but I try to include sources when I make claims:

    http://www.ctj.org/corporatetaxdodgers/CorporateTaxDodgersReport.pdf

  10. The free markets already decided which way was best – that’s exactly what got Americans to where they find themselves now. Jobless and de-skilled.

    Individual actors in unregulated capitalism will feather their own nests, not enrich the country. There’s simply no profit in it for them.

    An idea that Americans cannot seem to wrap their heads around is that individual benefit is not synonymous with collective benefit. Either the nation must take precedence, or the individual. Up to this point, America has chosen the individual.

    If you want manufacturing and jobs to come back stateside, then you’ll need to do exactly what all these countries you are looking at enviously do: have a 30+ year plan of solid, coordinated strategy, with business and government working perfectly in step. If a business steps out of line, you punish it, in exactly the same way a general would punish an unruly soldier – that’s how these countries have gone from utter poverty to powerhouse economies. They didn’t do it with foolish notions of the mythical wisdom of the markets – they treated it as a global conflict and their businesses as armies.

  11. Heh. We know the words “degunking Windows.” We might benefit from a degunked industrial policy.

    I the meantime, just double the DARPA budget.

  12. "Apple has consistently tried to use American workers and facilities as much as possible, but it is no longer practical given the lack of skilled workers, excessive government regulations, and the 35 percent corporate income tax rate."

    from http://katiekieffer.com/2012/01/30/why-steve-jobs-said-im-disappointed-in-obama

    Has everyone heard about the 1% and that they don’t pay as much taxes as everyone else? I remember reading that Steve Jobs advised the Democratic party that if the rich were taxed, they would take more jobs overseas.

    The other issue is immigration. In order to get 30,000 engineers to work at Apple, they would have to be given longer visas and that would create a political problem for immigration because people don’t want foreigners in this country. It is a political hot potato that no one wants to touch.

  13. I do have to wonder about this “shortage of skilled workers” bit. The jobs described in the NYT article didn’t sound like “skilled” jobs to me. More like “trained”, perhaps? Is there a name for jobs (like “iphone front glass polisher”) that take a bit of skill and a bit of training to accomplish, but aren’t in the “have an MS in engineering” category? (mind you, the US doesn’t do a very good job of training people in such semi-skilled mechanical labor. It’s pretty trivial to graduate from college without ever having done ANY woodworking, metalworking, machine tool using, soldering, electrical wiring, art, construction, or even COOKING.)

  14. Westfw,

    If you are willing to live in a dormatory, you aren’t married and you are willing to not talk during your shift then you are a trained worker whereas Americans are not. They simply went into other countries to save on labor.

    Chuck

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