Industrial policy

By ERNEST F. HOLLINGS, former U. S. senator

MARCH 12, 2012 -- The US continues to live in a dream world. The President, The Congress, Republicans, Democrats - Washington thinks it's in charge of the world's economy while it depletes the US economy. After World War II Japan closed its market, subsidized its manufacture, and sold its imports at cost, making up the profit of the closed market. Toyota became number one as GM went bankrupt. Now China sets the competition in globalization. In order to sell in China one must produce in China. In order to produce in China Corporate America must surrender its technology. China devalues its Yuan, controls its labor, health, safety, environment, legacy costs, banking, subsidies, market - its economy. And Corporate America rushes pell-mell to profit in China.


Hollings

Globalization is nothing more than a trade war with production looking for a country cheaper to produce. To survive in globalization nations develop an industrial policy to maintain their economies. The US has the makings of an industrial policy but fails to compete in globalization. Given a balanced budget in 2001 Washington stimulated the economy almost 10 trillion dollars in 12 years, bailed the economy boat as fast as it could, ignored the off-shoring hole in the bottom, increased the debt and lost jobs.

"The economy has 5.2 million fewer jobs now than it did four years ago, even as the population has grown," Wall Street Journal -- 3/10/12. We can solve the jobs, debt, and off-shoring problems by taking the tax benefit to off-shore jobs and give it to Corporate America to onshore jobs - replace the 35% Corporate Tax with a 6% VAT. The 2010 Corporate Tax produced $194.1 billion in revenues. A 2010 6% VAT produces $700B in revenues. Exemptions for the poor leave billions to pay down the debt. The VAT is on consumption instead of income - the more you spend the more you pay. A VAT has no loopholes giving instant tax reform. Rebatable on exports, the VAT promotes exports. This tax cut releases $1.2 trillion in off-shore profits for Corporate America to invest and create millions of jobs.

But Wall Street, the big banks and Corporate America want to keep the off-shore profits flowing. In China CEO's have no labor, safety, environmental or legacy worries. The CEO's don't want to come home and go to work. So they howl: "The VAT is regressive; the VAT adds to the sales tax." False. Exemptions for the poor negates regressivety. The 6% VAT is added at each stage of manufacture, factored in to the cost of production instead of factoring in the 35% corporate tax.

141 countries compete in globalization with a VAT. Today an entrepreneur can start a production in the United States and after a few years of success someone could go to China and put the US production out of business. US exports are double taxed - the corporate tax and levied a 17% VAT when exports reach China. China's exports to the US are tax free. Germany uses its 19% VAT to produce windmills in Charleston, SC. Producing the parts in Germany; shipping the parts at 3% cost; assembling the parts at 3% cost in the US; Germany produces green jobs 13% cheaper than any domestic production. In globalization trade laws must be enforced.

"We are in a trade war with this cabal fighting against us. Wall Street, the big banks and Corporate America contribute to the President, Congress, Republicans and Democrats to oppose an industrial policy, to do nothing to compete in globalization."

-- Hollings

If President Obama enforced the War Production Act instead of begging Russia for helicopters for Afghanistan it would create millions of jobs. If President Obama levied a 10% surcharge on imports like President Nixon did in 1971 when our trade deficit was a miniscule of a today's, it would create millions of jobs. If President Obama protected steel, motor vehicles, computers, and machine tools like President Reagan did in 1984, it would create millions of jobs. If President Bush and President Obama had levied a tariff on automobile imports like Brazil there would have been no need for bankruptcy and a bailout. Incentives for research, a VAT, avoiding deficit spending, avoiding deficits in the balance of trade, enforcing trade laws, protecting basic production, all comprised an industrial policy. The US is going out of business for the want of an industrial policy.

Wall Street, the big banks and Corporate America oppose an industrial policy crying: "It will start a trade war." We are in a trade war with this cabal fighting against us. Wall Street, the big banks and Corporate America contribute to the President, Congress, Republicans and Democrats to oppose an industrial policy, to do nothing to compete in globalization. So Washington does nothing. Washington continues to subsidize the off-shoring of jobs; refuses to enforce trade laws, refuses to develop an industrial policy while Corporate America shouts "free trade" as it depletes the economy of the US and develops China's closed market.

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.

About Fritz Hollings

Ernest F. Hollings served the public for 56 years -- 38 years in the United States Senate and as South Carolina's governor, lieutenant governor and a member of the S.C. House of Representatives.

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