Selling Out a Superpower: Where the U.S. Economy Went Wrong and How We Can Turn It Around

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In 1968, there were sixty-two lobbyists in Washington; today there are thirty-four thousand, outnumbering members of Congress and their staffers two to one. By 2008, these lobbyists were spending approximately $8.2 million for influence per day. Few, if any, of these lobbyists represent the majority of Americans in the middle class. So it’s not surprising, given these statistics, that real median household income in America has stagnated for over a decade. This hard-hitting book documents that a combination of ...

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Selling Out a Superpower: Where the U.S. Economy Went Wrong and How We Can Turn It Around

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Overview

In 1968, there were sixty-two lobbyists in Washington; today there are thirty-four thousand, outnumbering members of Congress and their staffers two to one. By 2008, these lobbyists were spending approximately $8.2 million for influence per day. Few, if any, of these lobbyists represent the majority of Americans in the middle class. So it’s not surprising, given these statistics, that real median household income in America has stagnated for over a decade. This hard-hitting book documents that a combination of special interest groups and their army of money-peddling lobbyists, along with government mismanagement of business and the economy by both parties, have betrayed the American middle and lower classes for the last twenty years. The result is a host of misguided laws and policies that have driven jobs and whole industries offshore, never to return. The author takes issue with those who emphasize the potential benefits of globalization without taking notice of its many negative effects on American society. He also argues that inept policy threatens to derail the American economy permanently and that our economic malaise is more than a short-term reaction to a financial market collapse or global market forces. He cites critical areas where changes must be made to reverse the negative trend:
• Improving our 1950s-era educational system to produce a workforce able to compete for 21st-century jobs.
• Reform of tax codes that have been driving companies and jobs offshore. We are currently a nation that manufactures practically nothing!
• Weaning all levels of government away from deficit spending, which drains economic power
• Pursuing free trade that also means fair trade.
• Ending the cycle of credit-card debt and all-too-easy mortgage credit to finance ultimately unaffordable lifestyles.
• Making the United States more business friendly, so companies will grow and provide desperately needed jobs here at home.
The author warns that unless we implement these and other recommended changes, the American economy will inevitably decline while China, India, and other up-and-coming nations ascend. He maintains that all is not lost. If we follow the course he sets, we can reinvigorate and renew our economy, rebuild America’s greatness, create 21st-century jobs, and more. This book provides a roadmap for reclaiming American preeminence.

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Editorial Reviews

From the Publisher
"No single book I have read this year comes close to explaining what has occurred and what must be done to avoid a bad, sad future for the next generation of Americans."
-Bookviews

"Any political or economic college-level collection will find this offers fine discussion material."
-The Bookwatch

"Pollina not only lays out a comprehensive diagnosis of how American economic might declined over multiple decades and produced the cataclysm of today, but also provides a thorough prescription to restore U.S. confidence at home and abroad. He pulls no punches…and calls upon economic developers, business executives, and other community leaders to reinvest in the fundamental building blocks that historically made America great: education, R&D, manufacturing, work-force training, less cumbersome government regulation of business, and a more competitive tax environment. Most importantly, he straightforwardly calls for an end to mortgaging-the-future debt and a return to fair and balanced trade policies… This book is both a compelling read and a challenging formula. It should not be ignored… "
—Ron Starner, general manager of Conway Data Inc. and Site Selection magazine

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Product Details

  • ISBN-13: 9781616142155
  • Publisher: Prometheus Books
  • Publication date: 10/15/2010
  • Pages: 325
  • Sales rank: 892,544
  • Product dimensions: 6.20 (w) x 9.10 (h) x 1.20 (d)

Meet the Author

Ronald R. Pollina, PhD (Park Ridge, IL), is the author of the nationally recognized Pollina Corporate Top 10 Pro-Business States Study, which is published annually. He is the president and founder of Chicago-based Pollina Corporate Real Estate, Inc. The Wall Street Journal, New York Times, Chicago Tribune, Financial Times, Business Week, and Forbes magazine frequently quote his opinions on geoeconomics and corporate location.

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Table of Contents

Contents

Preface....................13
Acknowledgments....................19
1. Superpower No More? The Shift in International Economic Power....................21
2. Where Has All Our Vision Gone?....................37
3. East Is the New West The Shift in the Balance of Power....................55
4. To the Victor Go the Spoils....................71
5. Twentieth-Century Education Does Not Produce Twenty-first-Century Jobs....................85
6. Outsourcing National Security....................103
7. Driving American Companies Offshore It's More Than Cheap Labor....................117
8. The Great American Job Purge We're Making Little Effort to Stop It....................133
9. Taking Responsibility For Economic Development....................153
10. Our Representatives Aren't Representing Us Federal and State Leaders Just Don't Get It....................167
11. A National Addiction to Deficit Spending....................181
12. Why Free Trade Doesn't Mean Fair Trade....................197
13. The Eleventh Commandment For Some Presidents, It's a Matter Of Faith....................211
14. The High Cost of Free Trade....................225
15. There's No Such Thing as Win-Win Negotiating....................239
16. Easy Credit, Family Debt, and Tax Cuts Why You Can't Get Ahead....................251
17. The Morphine Solution to Economic Problems....................267
18. Twenty-First-Century Economic Wars....................287
Endnotes....................303
Index....................325
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First Chapter

Selling Out a SUPERPOWER

Where the US ECONOMY WENT WRONG and HOW WE CAN TURN IT AROUND
By RONALD R. POLLINA

Prometheus Books

Copyright © 2010 Ronald R. Pollina
All right reserved.
ISBN: 978-1-61614-215-5

Chapter One

SUPERPOWER NO MORE? The Shift in International Economic Power

America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves. —Abraham Lincoln US president, 1861–1865

DECLINING MIDDLE CLASS—DECLINING SUPERPOWER

Myth Number 1: The United States is the preeminent global superpower in economics, political influence, and military dominance, and that is not going to change, certainly not in my lifetime or that of my children. In the 1980s, as a nation we were riding high—we were risk takers, inventing new ways to make money and new things to spend it on. As a nation we were prospering and we felt secure. From 1980 to the financial crash of late 2007, the Dow Jones industrial average continued a rapid climb, hitting 14,165,1 and median new home prices quadrupled.

With the beginning of the new century, we began to hear more about jobs going offshore and the decline of manufacturing. At the same time, we were being told by our political leaders and the press that this was all part of the wonders of the twenty-first-century global economy, and America was going to benefit from these changes. Many Americans found these benefits difficult to see.

Soon, all was not well for an increasing number of Americans. Factories were closing in all parts of the nation, not just in the Rust Belt of the North and Midwest. Unemployment began to rise in certain areas of the nation and in certain industries. The overall unemployment rate was still relatively low, averaging about 5.7 percent for the 1990s, although many thought the situation was worse than this statistic reflected. Employment experts were concerned that many who had lost their jobs were forced into being underemployed (in a job below their skill level), into early retirement, or gave up on finding a job. With the advent of the recession in December 2007, the unemployment rate jumped to over 10 percent by the end of 2009. We were in the worst financial downturn since the Great Depression.

The American public and their governments—federal and state— were on a huge spending spree. Americans were financing a lifestyle that they could no longer afford. We had become addicted to borrowed money. Other countries like China and India were taking our jobs and technology, but, hey, we were getting cheap TVs, cell phones, and iPods. Interest rates were low, so when we couldn't afford what we wanted, we borrowed.

By the beginning of the new century, the nation's deficit was rising rapidly, as was the trade deficit. For the first time, median household income began a consistent decline, while inflation continued to rise. In spite of these signs, we were being told we were doing great, and many thought we were, because our investments were still riding high and our home values were soaring. We were confident in Wall Street and our political leaders when they explained away the danger signs.

By 2000, we were in the twenty-first-century world of globalization. The term globalization has become a common buzzword covering a wide range of political, economic, and cultural trends. For our purposes, it describes a process by which national and regional economies and cultures have become integrated through global systems of communication, trade, capital flows, migration, and the spread of technology into the international economy. With globalization, words like outsourcing, offshoring, downsizing, and rightsizing began to be used more frequently than ever before. Millions of American workers, not just in manufacturing, lost their jobs and were unable to find new jobs. For these Americans, it made no difference what jargon was used—the results for them and their families was the same. But it is not just these workers and their families that were being affected— the nation as a whole began to feel the repercussions of globalization. We didn't pay much attention, if any at all, to the fact that with the turn of the century, the US economy began growing slower than the global economy.

We heard of the wonders of globalization and how rapidly it was advancing countries like China, India, and Brazil, where hundreds of millions of people were rising from poverty into the middle class. American families increasingly found that in spite of a flood of low-cost products from offshore, their standard of living was not improving, their incomes were not rising (see chapter 11), and they were sliding increasingly into debt (see chapter 16).

It is important to recognize that the factors leading to America's economic troubles existed long before the downward spiral of the housing market after its peak in early 2005, the start of the recession in December 2007, or the collapse of the financial markets in 2008. These were the slap in the face the public needed to awaken us from our spending binge. We began to come to the realization that our economy was losing its ability to generate the income necessary to maintain the lifestyle we sought. The American public has since begun to adjust by attempting to decrease its household debt and consumption. However, the federal government continues to borrow, tax, and print money— showing no indication that it is making enough of a similar effort.

Globalization, once promoted as the path to economic growth, is no longer regarded in the same way by populations in advanced nations. In Europe, polls report that two-thirds of EU citizens see globalization as profitable for large global companies but not for citizens. A 2002 Pew poll showed that in the United States, 78 percent of its citizens thought foreign trade was beneficial to the country; by 2007 (prerecession) the percentage had dropped to 59 percent. By 2008, a CNN poll showed that a majority of Americans saw trade as a threat, not an opportunity.

For the first time, Americans began to feel a threat to our status as the world's superpower. Try to imagine what life would be like in America if it were the third-ranked global superpower behind China and India. How would it affect us socially and economically and from a security perspective? Picture this change reflecting a substantial improvement in the economies and standard of living in China and India, with a commensurate weakening of the United States economy and standard of living. Envision that this will occur in your lifetime, or at least within your children's lifetimes. Finally, imagine that this situation is, in large part, the result of mismanagement by our political leaders.

The worst part of this scenario is that it does not need to occur. Populists and protectionists tend to blame the growing apparent United States disadvantage on "unfair" trade practices by other countries. Most of our political leaders understand the direction in which the nation is traveling, but they are not taking the necessary action to make a course correction. Historically, this is not unusual; many great superpowers have been largely responsible for their own demise.

The economic, social, and political implications of America's mismanaged globalization threaten to shake our society to its foundations. The middle class is at war, engaged in an international battle to keep its jobs and standard of living—and the battle is not going well. For the first time in our history, the size of the middle class is diminishing and its income is not rising to keep pace with inflation (see figures 6 and 9, on pages 186 and 223, respectively), and this trend began long before the 2007 recession. Many of the same forces causing the middle class to shrink are causing Americans with the lowest economic prospects to grow in number.

How did we get to this point? During the housing boom that kicked off the twenty-first century, middle-class Americans who could no longer improve their earning power refinanced their homes, pulling out billions of dollars in equity to protect a lifestyle they could no longer afford. By turning their homes into ATMs and increasing their credit card debt, most middle-class Americans are now paying interest on their groceries, making the possibility of retirement or paying for medical emergencies or college tuition impossible. Never before has the American public and its government been so deeply in debt, and never before have the economic prospects for our children and our children's children to have a better standard of living than we have been so dismal. For many Americans, their last job was the best job that they will ever have.

Our economy was built on the fact that we as a nation made excellent products and provided exceptional services that were in demand worldwide. We have been rapidly surrendering our position of leadership in these areas where we truly excelled, which were responsible for making the United States a superpower. In the last two decades, we have shifted to a nation that can claim that one of its biggest growth sectors is providing financial services. Thus far in the twenty-first century, we have shown that this is not a business we are very good at. In fact, we are so bad at it that we triggered a worldwide recession.

Our nation became a superpower because we invested in manufacturing, research, and development. We were innovative and we made things. However, we are rapidly becoming a nation that makes nothing, and we now spend more money on lawsuits than on research and development. The United States now has the largest national and personal debt of any nation. Most important is that this debt has not been caused by financing investments but rather by government spending and high levels of private consumption of goods produced offshore.

When the public first began to recognize that the nation's financial industry was beginning to implode in September 2008, the government responded by flooding the industry with $700 billion. This money did not come from a government rainy-day account but rather was added to the national debt.

The federal government acts like it has a credit card with no spending limit. Credit extended to the government comes through the sale of United States treasury securities. These securities are backed by the "Full Faith and Credit" of the United States government. Over 25 percent of these treasuries are owned by foreign governments—mostly China and Japan (the oil-exporting countries) and the United Kingdom.

When as a senator Hillary Clinton was asked why the federal government does not get tougher on trading partners like China, she stated, "How do you get tough on your banker?" She also stated that she sees "a slow erosion of our economic sovereignty." It is difficult to comprehend that our political leaders acknowledge that they see our economic sovereignty eroding, yet they do little or nothing to stop it. Indeed, they have created the situation and are perpetuating it as a result of their unbridled spending and poorly conceived legislation, regulation, and trade policies. Our government's policies have led the United States toward a future of diminished economic and political power that has left us vulnerable to external economic forces.

GOVERNMENT COMPLICITY IN OFFSHORING

A leading cause for the United States' weakening financial position is our tax structure that encourages companies to move offshore. Unlike most advanced nations that have reduced corporate taxes in order to become more competitive with countries with low labor costs, the United States has maintained a tax system with the second-highest (Japan is first) corporate taxes in the world. We regulate certain industries to the point that we drive them offshore, while we deregulate others, allowing them to drive personal bankruptcies to record highs and the nation into recession. For example, after twenty years of deregulation in the lending industry, in 2005 (pre–housing bubble), home foreclosures had more than tripled in less than twenty-five years.

Offshoring of the nation's high-tech and manufacturing jobs is continuing at a rate that is growing in intensity. In spite of this, the federal government and many state governments continue to offer little or no assistance to businesses to promote job growth at home.

During my career, I have assisted in relocating numerous manufacturing operations, research and development facilities, and corporate headquarters from one part of the nation to another. But what is most discouraging is the ease with which executives are able to expand offshore, once a company has established some presence beyond the United States. Making an economic case for expansion in the United States is getting harder every year, and it is not all due to lower offshore labor costs.

It's not just large corporations that are moving offshore; it is increasingly midsize and even small companies that are making the move. Several years ago, we were engaged by a client to approach their local and state economic development organizations. Our client, like many US companies, was having a difficult time competing in the global marketplace. This small company had about 390 employees, most of whom were in manufacturing. Their facility was old and cramped, and they needed to automate to cut costs and to meet the pricing demands of new customer orders. They also had a small operation with about eighty manufacturing employees in China.

The United States officials from the community and state refused to provide financial assistance to retrain existing employees or to provide tax abatements or infrastructure improvements. They claimed that they had no assistance programs for companies already in the state. The other negative was that the company would be adding only twenty-five employees as a result of their expansion and automation program. The company said they would agree to repay any financial assistance provided by the state or community if, during the next ten years, they dropped below 350 employees. We had negotiated with another state that was willing to give them $21 million in state and community incentives to relocate. The third choice of a Chinese location would have reduced their labor costs substantially and some of their other operating expenses.

Without the assistance that would make staying at their current location feasible (substantially less than the $21 million offered by the other state), and with the negative messages from their state and community, the company owner said the governor and mayor made a tough decision easier. He also said that while the offer of $21 million from the competing state made his choice difficult, if they had to relocate and train a new labor force, it would be more profitable long-term to expand their operation in China and phase out the US operation altogether.

As requested by our client, and as is customary, we did not tell the state or community of our client's plan to downsize and eventually close the operation. Companies often do not divulge plans for long-term phaseouts, as they may adversely affect operations in other parts of a state that are doing well. Also, if conditions improve, a phaseout may be stopped or even reversed. When asked by local and state officials about our client's plans, we could only say that they would not be moving to another state. The response of one of the state officials was, "We knew you were bluffing when you said they would move if we didn't help." The governor and mayor put out a press release stating that through their efforts, they had preserved 390 jobs. Within three years, the operation was gone. With a few million dollars and a more positive attitude, these jobs, with an approximately $18 million payroll, could have been saved. Did the state and community win this negotiation or did 390 families lose? Or did neither win?

Unfortunately, based on my experience, this is not an uncommon outcome of globalization for American workers. We often see in the news that a particular company is "downsizing." The reality is that downsized jobs very often are not being eliminated but rather "offshored." This case is not an isolated incident—it is a common scenario that has been taking place throughout the United States since the early 1990s.

(Continues...)


Excerpted from Selling Out a SUPERPOWER by RONALD R. POLLINA Copyright © 2010 by Ronald R. Pollina. Excerpted by permission of Prometheus Books. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
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