Submitted to the Presidential Transition Team by the U.S. Business and Industry Council, January 15, 2009
                                                  
America’s economy is in danger because Washington and Wall Street have forgotten the bases for successful capitalism and sustainable prosperity – creating genuine wealth by producing, and thus supporting first-world living standards with earnings.  For too long, consuming, borrowing, inflating assets, and reshuffling paper wealth were treated as adequate substitutes.

The top priority of any stimulus or economic recovery plan must be refocusing American business on producing the goods and related services that Americans want and that can generate middle-class incomes for the great majority of working families.  And if these goods and services are not produced at home, they won’t generate the needed incomes at home.  

Achieving this goal requires greatly strengthening domestic manufacturing – which (a) dominates the economy’s genuinely productive segment; and (b) is also the only sector of the economy with a proven record of enabling large numbers of working class Americans to earn middle class wages and benefits.

>Too many current and proposed stimulus strategies neglect completely the central place domestic manufacturing must occupy in a healthy recovery.  

>Strategies emphasizing only repairing financial markets and restoring credit flows will simply re-create the house-of-cards, bubble economy that existed prior to the current crisis – in which America and its citizens borrowed and consumed until the bubble burst.

>There are only three basic ways to create wealth:  manufacturing, resource extraction, and agriculture.  Manufacturing is by far the largest employment and wealth creation tool available to the economy.  The recovery focus has to shift to the nation’s beleaguered manufacturing sector – or a jobs implosion will lead the way into a serious depression.

>Existing production-oriented proposals overlook the country’s excessive and growing dependence on imported goods – especially manufactures.  Worse, heavy dependence on current-generation manufactures will breed heavy dependence on many next-generation manufactures, such as green products – on which the Obama administration is placing much emphasis.  Unfortunately, “green manufacturing” does not, as widely assumed, entail that many radically new materials or processes.  It is also susceptible to the same offshoring trends that infect all domestic manufacturing. And many other countries are also pursuing it intensively.

>Unless the production and use of domestic goods is maximized in the economy, any federal stimulus programs could primarily reflate the over-borrowing and over-consumption cycle – without repairing the economy.  Much of the growth stimulated by direct American taxpayer support would likely take place abroad, reviving an ultimately unsustainable world trading system centered on exporting to the American market.

>Keeping most growth at home will require high domestic-content standards on all taxpayer-assisted programs and procurement.  Where sufficient domestic capabilities are inadequate, policy must aim to recreate them or bring them back on-shore.  Buy American standards in federally funded programs are current U.S. law and are WTO consistent.

>Because stimulus programs alone cannot reorient the U.S. economy back towards production, additional measures will be needed – particularly in the area of business taxation.  The U.S. has the highest or second highest business taxation among developed nation economies. Allowing domestic businesses to keep more of their earnings – on the condition that it is re-invested in the American economy – is an extremely important job creator and domestic output generator.

>Trade policy’s importance for revitalizing domestic manufacturing in particular is also critical.  The three biggest imperatives are:

1. Responding effectively to numerous predatory foreign trade practices.  These range from East Asian currency manipulation to VAT export rebates to illegal government subsidies to dumping to intellectual property theft.  There are bills in Congress ready to go in many of these areas.  These must be passed and signed into law in the first 100 days.

2. Foregoing new offshoring-focused trade agreements (e.g., NAFTA, CAFTA, PNTR with China) that enable and encourage multinational companies to supply the U.S. market from abroad, and that have stunted production and investment at home.

3. Reworking existing offshoring-focused trade agreements to narrow or deny such options to multinational companies.

Unless the Congress and the Obama administration restore manufacturing to a primary role in the American economy, all of the stimulus and TARP money will have been wasted – and there will be no second chance to get things right. We cannot print, borrow, or export our way out of this crisis.  We must PRODUCE our way out of it through a newly reinvigorated manufacturing sector.

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