Among the flurry of stories in recent days about the realities of globalization and the advantages China has over the U.S., Fareed Zakaria begins his newest Time magazine column with a two-by-four between the eyes for those who still aspire to fair trade or free trade:
“In a recent front-page story, the New York Times detailed how Apple’s iPhone ended up being made outside the U.S. In describing the various forces at work — cheap labor, abundant engineers, quick turnarounds — 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 touchscreen. When the Apple team got there, the factory owners were already constructing a new plant. ‘This is in case you give us the contract,’ the owners explained. How could they afford such an extravagant gesture? It turns out, the Times noted, that they received subsidies from the Chinese government.”
That, in a nutshell, is the disturbing reality of trying to compete with the Chinese. Build it and they will come. And build it with government money.
Zakaria, who is as centrist as they come, reaches this conclusion: “Like it or not (I don’t), we need a manufacturing policy to stay competitive.”
Increasingly, it comes down to the adage, companies cannot compete with countries.
Virtually all Republicans, even old-fashioned Democrats, would cringe at the idea of the federal government competing/intervening on the same level as most of Asia. We already pick too many winners and losers, conservatives say.
But the truth is that talking about taxes and regulations and federal spending doesn’t get the job done. In this global economy, it can’t. “The rest of the world is chewing us up alive,” one American CEO remarked to Zakaria.
“Economists tell us,” Zakaria wrote, that “it’s a complex matter involving tax, trade and regulatory policy, exchange rates and educational skills. It is. 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.
“… When I look at China and South Korea and also Germany and Japan, I see governments playing a crucial role. They do make mistakes— their versions of Solyndra— but they seem to view them the way venture capitalists would. Their role is to seed many companies, only a few of which will succeed. Once these companies are identified, government helps them compete against big U.S. multinationals.”
This is big, important stuff. I would urge you to read the full column here.
