Friday, September 17, 2010
You mean, say, something like this?
President Obama's proposal to boost the research tax credit for businesses is widely seen as necessary to bolster American competitiveness in the global economy.
But even if the $100-billion plan is approved, it won't begin to address the fundamental question of how to turn that research and new technology into jobs and renewed prosperity for Americans.
Over the last two decades, U.S. scientists and engineers have discovered or pioneered the science behind one blockbuster product after another — from flat-panel screens and robotics to the lithium batteries that run next-generation power tools and electric cars.
Yet in almost every case, production, jobs and most of the economic benefits that sprang from those breakthroughs have ended up overseas.
America's innovative spirit may still be the envy of the world — major steps forward in nanotechnology and biomedical fields, among others, continue to be made in U.S. labs. But without more effective policies to translate those achievements into gains at home, the fruits of America's creative genius will probably continue to be reaped by others.
And new reports show that during the recession American companies ramped up investment overseas for plants and new hires, as well as research and development — even as they cut back domestically.
Foreign subsidiaries of U.S. corporations increased their spending on research and development by more than 7% in 2008 from the previous year, pushing the total to nearly $37 billion. But these same multinational companies sliced R&D expenditures in the U.S. that year 2.2% to $199 billion, Commerce Department data showed.
A similar but less dramatic difference was evident in hiring: Employment at these overseas units rose 1% in 2008 — and a stunning 15% in China — but was down 2% for the U.S. elements of the 2,200 multinational firms the Commerce Department studied.
Some of these jobs were lost to automation, but Obama and many independent economists said a big factor was the sharply different policy approaches of U.S. and foreign governments.
For decades, Washington has taken a largely hands-off, or laissez faire, approach, sometimes even adopting tax and other policies that critics said actively encourage the movement of manufacturing and other business activity overseas.
By contrast, export giants such as Germany, Japan and South Korea have embraced government policies — and even pressure tactics — that push businesses to maintain operations at home.
It is essential to observe that the issue here is not a nationalistic one, but, rather, one as to whether the government is pursuing policies that benefit workers or capital. In the US, the Obama administration continues to emphasize programs that benefit capital, international capital, in fact, as shown by the research and development tax credit proposal, as well as by TARP, which expended funds that went to European as well as American banks. Indeed, it is almost impossible for the US to structure economic measures solely for the benefit of domestic capital, given the overseas units of US companies and the operations of foreign firms in the US.
Government officials here are confident they found the right approach, including a better solution to unemployment. They extended the Kurzarbeit or short work program to encourage companies to furlough workers or give them fewer hours instead of firing them, making up lost wages out of a fund filled in good times through payroll deductions and company contributions.
At its peak in May 2009, roughly 1.5 million workers were enrolled in the program. The Organization for Economic Cooperation and Development recently estimated that by the third quarter of 2009, more than 200,000 jobs may have been saved as a result.
The German economy’s comeback is visible in smaller towns like Memmingen, in the historic region known as Swabia. The brightly painted market square in this prosperous town is straight out of a German fairy tale, but it is beyond the medieval fortifications of the old town that Memmingen’s part in the nationwide rebound of employment, which Chancellor Merkel has likened to a small miracle, took place.
After a record year in 2008, the family-owned firm Magnet-Schultz watched orders for its electromagnetic products plunge. Nearly one-third of the company’s more than 1,500 workers in Germany were put on the short-work program. Only 57 were laid off.
The firm’s chairman, Wolfgang E. Schultz, whose grandfather founded the firm nearly 100 years ago and whose son Albert joined as a vice president in January, said that his goal was to maintain the company in the long term by losing as few skilled workers as possible. He promised to try to rehire those who were let go when times improved. Forty of those workers have been rehired already.
Conversely, the German government, while unabasedly capitalist, did implement some policies that softened blow of the global recession upon the workforce, such as the one described in the New York Times article. Of course, one should not go too far with this, as German governments have imposed austerity measures upon workers in recent years. Even so, such governments have recognized that the preservation of a skilled workforce is essential for the future prospects of a manufacturing economy. Apparently, policymakers in the US, no longer so concerned with the manufacturing sector, consider such measures unnecessary, believing that the provision of services, including well compensated professional ones, have become fungible in a global economic system.
Perhaps, the conflation of the needs of the US economy with those of international capital explains the development of deficit reduction policies, with an emphasis upon social programs, Social Security and Medicare, despite the fact that they are minor contributors to the deficit:
Capitalists requires subsidy, so the US government has assidously provided it over the last 40 years, regardless of its impact of the federal budget. Capitalists also require the use of military force, or the threat of it, to open new markets and initiate the ruthless process of accumulation, so, again, the defense budget has grown, without concern as to the fiscal consequences. Meanwhile, social programs (roughly equivalent to the Domestic Discretionary Programs in the chart), Social Security and Medicare (pejoratively described as Entitlements in the chart) find themselves in the firing line, with everyone from President Obama on down frightening the populace about a non-existent crisis in the growth of such spending. Meanwhile, the various forms of subsidy provided to the financial sector through the Federal Reserve and the Treasury since 2008 remains an inappropriate subject in polite company.