Posted on 03/19/2006 5:54:24 AM PST by B4Ranch
The Manufacturing Factor: A History of America's Economic Ascension
Pat Choate writes in March 2005 how America came to be an economic superpower and how we have gone to great lengths to un-do what was created.
By suppressing American colonial manufacturing, Britain attempts to suppress American independence
The American revolutionaries almost lost the War of Independence because they did not have the manufacturing capacity to produce the arms they required. In the 17th and 18th centuries, Great Britain had prohibited its American colonists from manufacturing virtually any type of good for either their own use or export.
When the war began in 1776, a desperate Continental Congress sent Benjamin Franklin, the most famous American of his time, to Paris, where he was authorized to buy muskets, gunpowder, sails, cannon and shot. He also ordered blankets, pants, shoes and shirts for the Army Ð items the colonists could not manufacture in great quantities.
Once Franklin had the goods, he had to get them across the Atlantic, past the British Navy's blockade, and into the Caribbean Islands. Once there, smugglers put the goods onto lighter ships and slipped them up the coastal rivers to George Washington's agents. To get a musket and gunpowder from France to the U.S. took almost six months.
The deprivations caused by a lack of war supplies seared into the minds of the American revolutionaries the need for a strong domestic manufacturing base. Never again, swore George Washington, Alexander Hamilton, Henry Knox and a generation of other leaders, would the U.S. be dependent on others for the necessities required for its national defense.
Creating a strong industrial base was top priority for newly independent United States
When George Washington became President in 1789, his top priority was to create a strong U.S. industrial base. Early on, he commissioned Secretary of the Treasury Alexander Hamilton to devise a set of policies that could help the nation industrialize. The result was Hamilton's now famous, Report of Manufactures, issued in December 1791.
Hamilton proposed that the United States establish incentives to encourage foreign investors, mechanics and inventors to come, live and work in the United States. He also envisioned that the U.S. would never be able to compete against European and other foreign manufacturers unless its infant industries had the protection provided by a wall of tariffs.
By a striking coincidence of history, Adam Smith published his book, The Wealth of Nations, in 1776, the same year the American colonies declared their independence. Smith's book electrified intellectual thought in Europe and in the United States. Leading political figures, such as Thomas Jefferson, became strong advocates of free trade.
After the Revolutionary War, Jefferson and others argued that the United States should immediately adopt a free trade policy. Ironically, the British killed the idea by refusing to enter a treaty of commerce with the new nation and by banning U.S. trade in the West Indies. Simultaneously, British manufacturers began to dump their inventories of goods in the U.S. market at prices below their cost of production, their goal being to suffocate America's infant industries.
Nonetheless, the free trade advocates continued to urge open markets. The final blow to their hopes came after the war of 1812, a conflict in which Great Britain tried to reassert its control of its lost colonies. When the war ended, the British were as wooden headed as they had been before. Again, they tried to suffocate America's infant industries by dumping goods on the U.S. market, even as they imposed high tariffs and quotas on American imports into Great Britain.
Even Jefferson became convinced that free trade was a bad idea for the United States. In 1816, Senators Daniel Webster, John C. Calhoun and Henry Clay enacted America's first protective tariffs, creating the ÒAmerican SystemÓ of trade. It was Hamilton's plan.
America responds to British attempts to cripple American industry through cheap imports
Under the American System, the United States forfeited the quick consumer benefits from cheap imports. Instead, the nation took a longer view. It promoted domestic investment over personal consumption. Simultaneously, America allowed the import of foreign products for those willing and able to pay the tariff, ensuring consumer choice.
Robert G. Ingersoll, a prominent 19th century politician and orator, captured the thinking of that era as follows:
"It is better for Americans to purchase from Americans, even if the things purchased cost more. If we purchase a ton of steel rails from England for twenty dollars, then we have the rails and England the money. But, if we buy a ton of steel rails from an American for twenty-five dollars, then America has both the rails and the money."
The American System was U.S. trade policy from 1816 until 1933, the midst of the Great Depression. During that 117-year period, America had transformed itself from a handful of sparsely populated colonies on the East Coast, where 95 percent of the people lived on the farm, into the world's richest, most powerful, most technologically advanced industrial nation.
The Great Depression was not caused by American tariffs
The Great Depression marks the break point between trade eras in America. The old era ended in October 1929 when the New York Stock market experienced a financial panic. On Monday October 28, 1929, the market lost 13 percent of its value; the next day, Black Tuesday, it lost another 12 percent. The market did not hit the bottom until July 1932 with the Dow at 41 points. In that 32-month decline, the Stock Market lost almost 90 percent of its value. The market did not recover for another 22 years.
The panic was the first in the history of the U.S. Federal Reserve System, which Congress had created in 1913. When the panic came, the Fed first hesitated and then it did exactly the wrong thing Ð it tightened the money supply when it should have flooded the markets with liquidity. Over the next three years, the FED cut the money supply by almost 30 percent, turning a classic panic into the Great Depression.
Ironically, the two people who got the blame for the Depression were two Western politicians, not the Fed. They were Senator Reed Smoot (R-Utah) and Representative Willis Hawley (R-Oregon). Almost eight months into Wall Street's prolonged meltdown, they shepherded through Congress the now infamous Smoot-Hawley Tariff Act of 1930 that raised tariffs on about one-third of U.S. imports, which made less than 2 percent of the Gross National Product. Nonetheless, economists and politicians still blame a law created in June 1930 for creating a Depression that began in October 1929.
In 1933, Congress, fearing a backlash because of the public's false perception that the Smoot-Hawley tariffs had caused the Depression, delegated their Constitutional authority to regulate trade to the State Department and Secretary of State Cordell Hull, a former Member of both the House and Senate. Hull was a devoted free trader, but in his negotiations with other nations, he insisted on reciprocal tariff reductions.
Trade moves from a highly valued hallmark of US economic health to a giveaway concession in foreign policy negotiations
Reciprocal tariff reductions were the hallmark of U.S. trade policy until the late 1960s, when the United States negotiated the Kennedy Round of global trade negotiations. In those talks, the United States began to reduce tariffs in exchange for foreign policy and other concessions, such as military bases, and alliances in Cold War.
Trade concessions became a favored foreign policy tool. In quick succession, the Japanese negotiated policy concessions that allowed its electronics cartel to destroy the U.S. electronics industry. In the 1970s and 1980s, the U.S. destroyed its textile and apparel industries by granting other nations special quotas in exchange for their global political support. In the 1991 Iraqi war, the U.S. gave Turkey apparel quotas worth 20,000 U.S. jobs per year. In 2002, Turkey asked for even more concessions, plus $30 billion worth of aid to allow U.S. troops to cross its border and enter Iraqi from the North. Hundreds of similar examples exist.
With the end of the Cold War in 1989, billions of workers in countries that had previously been off limits to European, U.S. and Japanese companies were suddenly anxious to have foreign investment. To guarantee the safety of foreign investment in places such as Eastern Europe, China, even in Mexico, the U.S. led the world in the creation of the World Trade Organization (WTO).
The WTO witnesses willing American subordination of its sovereignty for the first time ever
The WTO sets the global rules on investment and trade. It provides a legal forum where nations can take complaints about the trade practices of other nations. It also imposes a global set of protections for intellectual properties.
The U.S. participation in the WTO is historic. For the first time in U.S. history, the Congress agreed to subordinate its powers to set U.S. trade policy to an international body. It agreed that were there a conflict between U.S. trade laws and WTO rules, the U.S. would change its laws to follow WTO rules or pay damages set by the WTO.
Under the WTO rules, it is illegal for the United States to give any priority whatsoever to American-owned companies that wish to operate in the U.S. The Buy-America laws have effectively been repealed by an international treaty.
The new WTO global regime of trade encourages corporations to shift their production, and increasingly their research and development, from the industrialized world with its high wages, benefits, and worker protections to developing nations filled with penny-wage labor and lax government regulations. Then, the WTO rules also allow those companies to bring their products back into the rich world markets duty free.
Free trade and WTO has devastated the American industry so prized by our founding fathers
The open market policies advanced by the WTO and supported by a bipartisan majority in both Houses of the U.S. Congress have led to a rapid dismantling of the American economy. Since the mid-1990s, the U.S. has accumulated a trade deficit of more than $5 trillion, the largest unilateral transfer of wealth in history. Put into context, as recently as 1970, the United States manufactured here almost 95 percent of all that it consumed. Today, it produces less than half that portion.
At the same moment, the U.S. is shifting its manufacturing base abroad; it is also outsourcing its service jobs. Forrest Research estimates that American employers can profitably ship four out of ten U.S. jobs overseas electronically.
Today, America's trade and budget deficits are so large they exceed the capacity, and willingness, of U.S. and foreign investors to provide the financing required. Consequently, most of the capital that now finances the U.S. trade and federal budget deficits comes from the central banks of four Asian Governments Ð Japan, China, Taiwan and South Korea. They are also four of our major economic competitors.
Present U.S. trade policies are unsustainable. Unfortunately, our President and a majority in Congress do not understand the dangers created by the loss of the American manufacturing base nor do they realize how their policies are leading us to a financial calamity equal to the one that produced the Great Depression.
What is vital is that Americans understand that their country cannot be a superpower without its own manufacturing base. Nor can we maintain our standard of living or retain an assured national defense.
However, costly and however painful, this nation must eventually locate here the industries that produce most of the goods we need and consume, including those required for our defense. In sum, we must replace the ideology of free trade with the pragmatism of nation building. Our Founding Fathers would have understood.
Source: www.economyincrisis.org
Very good article. Thanks for finding it.
Where have I ever said no one else knows anything? You said we had no industrial base. $3 trillion in industrial production says you are wrong.
You said the following: I saw(sic) we should vote our(sic) politicians who refuse to recognize America's steady march to third-world status in the name of human rights and internationalism.
Do you have any facts to prove we are marching to third-world status? Or, like Paul Krugman, should we take your word for it, despite all the facts to the contrary?
Because you're both as insolent and elitist as they are.
Feelings, whoa whoa whoa feelings.
Did you even see the anecdote ClaireSolt posted?
Some have always bemoaned the half-life of science and engineering as some people are rendered irrelevant by rapid progress when they fail to keep up. My son, the software programmer, consequently, has little sympathy for his uncle the system consultant who does mainframe data bases which is declining.
This anecdote talks about how some people fear progress. I think this is self-evident. On the other hand, the anecdotes I attack as irrelevant are those that use the experience of one worker to "prove" that statistics covering tens of millions of workers are wrong.
I do not deny that some people you know may have to work two jobs. That does not change the fact that the standard of living of Americans, overall, has been steadily improving.
Well its a bed of their own making. I don't feel sorry for them. (Although it may be too early to count them out. I do think once GM and Ford are forced into receivership...that is the end of the line. They will have been totally debunked among their last segments of the populace that has been willing to give them the benefit of the doubt).
They clearly don't deserve America's sympathy. They have none for it. Think how facile and conscience-free they have been about their 'creative destruction.' How lame their castigations at 'lazy' 'worthless' 'stupid' Americans. They tried this line along with other insane triangulations with the Dubai ports and it blew up in their faces.
And they are still in denial over that complete rejection.
Guess it all matters precisely who is being creative and who is being destroyed, eh?
Let's see just how much greater the standard of living is for us today verses 1955. I don't need a slanted graph for this analysis, I lived then and lived the experience.
We had TV and Air Conditioning then. Other than the microwave oven I can't see any great improvement in our standard of living.
In the 50's most families only had one breadwinner...the Man. As a matter of fact, it was rare to see the wife working in a middle income family to support their lifestyle. Today, it takes both.
In the 50's we didn't have credit cards. Some had local credit at the grocery store and some shops. In general, if we couldn't pay for it, we didn't buy it. The result was twofold. One, we were not in debt beyond our means and two, things were affordable since we asked "how much is it" verses today's question, "how much per month is it" or worse yet, "what is the lease payment?"
In the 50's most people did not have medical insurance and the cost of healthcare floated at the price people would pay. Today, we have insurance (robbery on the installment plan) and the welfare system and medical costs are no object...unless you are not on welfare and your employer doesn't have a medical insurance plan. Then it's a financial disaster waiting to happen.
An finally, in the 50's when you passed away, your family received your life's labors in the way of money and property. Today, you can bet that it will either be taken from you by the medical system or by lawyers.
Most people today are financial slaves. They just don't know it or don't want to see it. Don't believe it, have today's generation actually figure out their NET WORTH in real terms, not by accounting games. Take all that you have (cash and equity) and subtract all liabilities (both short and long term) and see whether you are a financial slave or not. I think it will become pretty clear that most people owe a whole lot more than they have, and worse yet, during their lifetimes, never move into the black or break even.
Back in the 50's dollar bills were backed by silver. Today they are backed by ink and paper. That's a better standard of living?
Roooooight. Your claims about production have been thrown in your face. The production is inflated. In fact, they are just importing more. The U.S. production numbers are inflated by....the imported subcomponents. Which then gets labeled "U.S." production. The labelling function is charged off for a huge percentage...really 'productive' function, eh? The imports are Displacing REAL U.S. production.
Poor Paul. From your post:
The Wall Street Journal reported the number of factories in the U.S. shrank last year to 336,000, down 10% from its 1997 peak, part of a steady decline that shows no sign of reversing.
Yeah, that's the funny thing about productivity, you can make more products with fewer factories.
The following link shows that since 1997, manufacturing output has grown by 9.5%. With 10% fewer factories. Sounds like higher productivity to me. I'm sure you can find a Paul Ross data dump that proves it's not. LOL!
Like your tag line!
You have a funny memory that seems to suit your idoeology. I remember Robert Byrd and and a treasury secretary competing in the senate, both claiming to have grown up without any hot water. If you had AC in the 50's, you were part of a very small group. Maybe your father was a draft dodger. For the families of many veterans it was a time of rebuilding, if they were lucky.
For every person that works two jobs I think I can certainly introduce you to someone who choses not to work at all. Neither group, by the way, wants your interferance in their lives. And they especelly don't want busybodies making things more expensive to social engineer things to be the way they think they should be.
"Maybe your father was a draft dodger..."
No, he wasn't. He tried to join but they would not let him. He had a severely crippled leg due to Polio when he was 9.
My father was a lawyer. He graduated with honors from Old Miss and UT. He took jobs like letting mosquitoes suck his blood and any other job that he could to pay for his schooling. He started his law practice in the 30's in Alice, Texas by setting up some crates on a downtown corner and practiced law right there. We were able to afford a TV and air conditioner because this crippled person never thought to blame his handicap for any hard bumps he met in the road.
Once he was making a decent living he refused to pay me an allowance and made me start sacking groceries at 9 years old. He said if he could do it, I could do it.
He taught me how to work and what a work ethic was. He also taught me that when duty called...you went...and for four years during the Viet Nam war, I served in the Air Force.
What branch of the service did you and your dad serve in?
This is another free trader tactic. You all have "special codeword" names to call people. As soon as they call you names -- simple or otherwise, it's "ad hominem." A little ways forward in #52, you suggest that DH's father could be a draft-dodger. On FR, that's about as low a blow as one can make. But you slipped it in between veiled snipes about air conditioning.
This particular name that you've chosen to call me is of great interest. TP tried to suggest earlier that the blood of our fallen troops offers no argument in favor of protectionism. You both have lost your sense of connection to the world around you. This is why you can so easily call protectionists "collectivist." You've forgotten that even the people don't own the greatest gifts America has been bestowed.
Where do you think the economic power came from that propelled America to the greatness you both claim is only getting better and better?
It came from the security provided to Americans by their troops, from the souls they offered up and the blood they spilled in the defense of your future economic security. This is not yours to "spend" or "slough off" lightly in foreign debt and weakened manufacturing independence.
It came from the kinship Americans felt for one another as they worked side by side for a better world. It came from the land grants that gave Americans a sense of ownership they'd never had before. That common cultural bond of being an American, of being part of this great country -- is also not yours to waste or abuse.
Our financial security and independence has come from the vast natural resources buried deep in the earth and dredged out by the toiling of the American people. It came from the geographic isolation provided by the North American continent. This, too, is not yours to seize or misuse. It was given to us by a force far more eternal that your passion for "free global trade."
America's economic security has come from work ethic shared by so many who were born or moved here from Europe. This deeply rooted sense of what it means to be an American is yet another thing that is owned by nobody, and yet has priceless value to us all. Our cultural compatibility is something else that shouldn't be squandered in the name of open trading zones and a globally-mobile workforce. It's not really yours to "own" and "consume" as capitalist with "enlightened self-interest."
You call those who wish to protect America's advantages "collectivist." You're the worst kind of collectivist because you believe it's a foreign-owned corporation's right to determine the sole outcome of the use of these shared resources, including the precious and delicate trade balances that TP yearns to dismiss.
You both refuse to recognize that America's greatness was as much a gift given us by the Creator as anything else. You're forgetting the origins of our success. You think it's in enlightened self-interest. That's only part of the story of America's rise to glory. If all we had were the values the two of you espouse, we never would have risen at all. This is why you can't be entrusted with our future.
So God told you higher tariffs are needed?
Bump.
Thank you. This is a work of true heart and soul. Patriotic gospel truth from one crying in the wilderness of manna-worshipers.
Eagles UP!
Where ever did you get that idea? Do you even know what I'm talking about?
Obviously the notion that there is a Creator is an uncomfortable idea to him.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.