In his memoir, George W. Bush recalls hosting Chinese president Hu Jintao on his first visit to America in April 2006. Bush told the Chinese leader that the thing that kept him up at night was fear of another terrorist attack on the United States. Bush then asked Hu, “What keeps you up at night?”
Hu’s response: Creating 25 million new jobs a year for his people was the challenge that kept him up at night. China is focused on creating jobs, and when China is focused, China gets what it wants.
By contrast, our stubborn fealty to laissez-faire doctrine has left the United States helpless to combat the continuing departure of manufacturing jobs from our shores. Between 2001 and 2010, 42,000 factories were closed in America. One-third of all manufacturing jobs in the United States have disappeared. At the same time, manufacturing in other countries is on the upswing. No wonder—businesses can shift their production overseas and get twice the workforce at half the price.
Jack Welch, former CEO of GE, summed up the business philosophy behind such shifts in these words: “Ideally you’d have every plant you own on a barge to move with currencies and changes in the economy.” That might work well for GE—but woe to workers and communities.
The central error behind the conservative dogma that tax cuts automatically lead to economic growth is the assumption that we operate in a closed economic system. In reality, both the Michigan and U.S. economies are very small parts of a much larger global system. So when we cut corporate tax rates in a single state, like Michigan, many corporations will be just as likely, if not more likely to invest the savings in foreign workers, foreign companies, or foreign financial instruments, as to invest in America. And when Michigan consumers get a tax break, they may or may not “buy American”—if they have the option. Try to find a cell phone, a television, or even a shirt made in America.
The numbers bear this out. Recent Commerce Department data show that in the decade between 2001 and 2011, domestic employment by U.S. companies declined by 2.9 million workers, but in the same period, overseas employment at U.S. companies grew by 729,000, to 11.9 million. A large part of the reason jobs have not returned as the recession has ended is that from the companies’ standpoint, the jobs never disappeared in the first place; they simply moved. The stories are legion. When Delphi filed for bankruptcy in 2005 as Kelly Keenan had predicted, it had 50,000 U.S. employees; today it has just 5,000, and 91 percent of its 100,000 hourly workers are in low-wage countries. In 2008, Sony announced that it would close its last U.S. LCD television factory and move it to Mexico. In 2009, Dell closed its computer factory in North Carolina and moved the jobs to other factories outside the United States. Between 2003 and 2008, as Michigan was leading the United States into the Great Recession, U.S. companies more than doubled their employment rolls in China.
And, high-skill jobs, too, are moving at an alarming rate. Of the ten U.S. companies that spend the most on research and development, eight of them have R&D facilities in China or India. According to the Chinese Ministry of Commerce, in 1999 there were only 30 international R&D facilities located in China. By 2008, that number had grown fortyfold to 1,200. There are business reasons for these moves, such as the need to access growing markets abroad. Some profits are repatriated, and some jobs, especially white-collar jobs, remain in the U.S. But the net decline in U.S. jobs is huge and growing.
The statistics make it clear that government is not the problem with the American economy and tax cuts aren’t the key to future growth. A handful of business leaders are showing the intellectual integrity to bring this to light. When legendary investor Warren Buffett was asked about “trickle-down capitalism,” he replied, “The rich are always going to say that, you know. ‘Just give us more money, and we’ll go out and spend more, and then it will all trickle down to the rest of you.’ But that has not worked the last ten years, and I hope the American public is catching on.”
I’m aligned with leaders of both parties who want to simplify the federal corporate tax system and reduce the rate. But tax cuts aren’t enough. It’s time to overcome our fear of a more active government and to recognize—and deploy—the power of well-designed competitive economic policy.
Credit: From the book A Governor’s Story by Jennifer M. Granholm and Dan Mulhern. Reprinted by arrangement with PublicAffairs www.publicaffairsbooks.com), a member of the Perseus Books Group. Copyright © 2011.