Chapter 11
Insourcing Our Way Back to Prosperity
By-by Banana Republic
So, as we become more of a banana republic and we begin to behave in many ways as a dictatorship of bananas, perhaps the correct solution for America to get back on its feet is the solution the United States, when we were at the top of our game, would recommend to smaller nations that were suffering through banana republic regimes.
One such solution is called Import substitution industrialization. It is also known as Import-substituting Industrialization." (ISI).
Businessdictionary.com defines import substituting industrialization as a theory of economics which is utilized by developing market nations that are looking to increase their self-sufficiency and decrease their dependency on goods from developed countries. To implement the theory, there must be a focus on protecting the domestic infant industries so they can compete with imported goods thereby making their economy more self-sustaining. Investopedia.com has a similar definition.
The term primarily refers to 20th century development economics policies, though it has been around since the 18th century. As we discuss the reindustrialization of America, we must examine a modified version of ISI as a fitting solution, as the unholy alliance of our government and our corporations have in effect de-industrialized the people’s America.
Sometimes you need a slap in the face to wake up. This intentional and uncomplimentary slap in the face goes to my country’s leadership that has permitted us to be in a position that it would be good for us to begin again to industrialize.
Is there a difference in the countries for which the United States in prior years would have recommended ISI and the condition of the US today? The only difference I see is that America is not yet fully denuded of its industry but then again, the offshoring process is not finished yet. So far, politics has prevented any response to the destruction of American industry. Instead, we see the US giving more and more of our white collar jobs to overseas concerns.
So, I recommend an approach that pretends that we have nothing at all. This can be very effective in bringing us back as right now, we are on the road to economic perdition for sure.
The basic tenet of ISI therefore is to replace imports with domestic production. If we treat all American industries (those that build products or conduct business in the US using American employees) as infant industries and we incubate those industries from the outside world that is unfriendly to America, we can again succeed as we did in the two industrial revolutions which ended in the 1920’s. It is time for the US to enter the third industrial age, just ninety years after we ended our second and adopted free trade principles instead of advocating America first.
In addition to protecting the interests of the American people by protecting American home country firms, government must also embark on a public relations campaign that positions our interests above those of the faux American interests.
The false prophets in this case are the corporations who have abandoned us. Regardless of whether Apple or IBM or Microsoft or HP wants us to believe they make American products, they do not. They import products from other countries where they pay workers from those countries to produce the products. So, when we talk about avoiding imports, it is a larger term than some might initially conclude.
The ISI idea is simple. By making products themselves, small countries create jobs and rely less on other nations. The ISI thus is based primarily on the internal market. The product is sold to the home market. The USA is a huge market. In fact, it is the largest market in the world. It represents 25% of the total world market. Therefore, products built in the US through efficient means should be able to sell in the US, unless, of course there is unfair competition from other countries as there is now.
In truly developing countries, ISI is a total package. It works by having the state lead economic development through nationalization, subsidization of vital industries (including agriculture, power generation, etc.), increased taxation to fund the above, and highly protectionist trade policy. I would look towards a modified ISI approach for our reindustrialization.
For example, nationalization of American home based industries is very important. However, it is not the kind of nationalization in which private industry becomes controlled by the government. Instead it is the second definition of nationalization, “To make national in character, scope, or notoriety.” For our rebuilding it would be an exaggerated form of “buy American.” Yet, the producers of goods and services do not have to be American companies. Any company with an American-first attitude regarding site locations and employment would benefit from the new notion of nationalization. Products made in America would be known as American products no matter who made them. Products made in other countries would be imports regardless of whether they were made by corporations chartered in the US or in other countries.
Government-induced industrialization through governmental spending was the formula for ISI and it was the way the concept was practiced in developing countries such as Latin America and Asia in the mid 1900’s. The model was largely influenced by Keynesian thinking, and that is why the ISI notion was not as successful as it could have been. The American people are fed up with big government and big bailouts and Keynesian economic theory such as that practiced by Jimmy Carter and Barack Obama. So the Keynesian part of ISI would be a no-go and that would give ISI a better opportunity to succeed in America.
We already have enough evidence with GM and other government ventures such as Solyndra that government does not belong in any US industry. Government is the worst entity to operate a profit oriented organization. However, government can certainly choose sides so that it clearly favors all domestic-based companies over those that engage in profit by offshoring.
As you are digesting that last sentence, you probably noticed that there is one word that needs to be changed. The US government with its free trade policy and its anti-American trade agreements with 17 different countries and its being a proponent of offshore outsourcing to this day, does not have to choose sides. It has already chosen the other side. It is time for American leaders to change sides. Choose America first. It’s about time.
Additionally, the ISI notion of subsidization of vital industries (including agriculture, power generation, etc.), is not needed in the US. US farmers are already the best in the world, and they cannot offshore the productivity of the breadbasket of America to foreign lands. Additionally, the US is already number one in power generation though government can help in this regard. Government can get out of the way and permit power companies to produce enough energy to support a reindustrialization effort. Moreover, government can help expedite approvals for new energy sources and stop the nonsense of backing only energy ideas that are unproven.
From my perspective, a good start in this regard would be the disbanding of the Department of Energy. Nixon created the Department when the Arabs cut off our oil supply because we sided with Israel in 1973. It sobjective was American oil independence. Instead, we import 50% more foreign oil than we did in 1973. The DOE has failed and they should be run out of town.
In my new book, Kill the EPA, I recommend removing the EPA as an economic obstacle. Capitalism works when capital can be applied to the markets in which it is needed. Government regulations have destroyed the true market balance necessary for capitalism to thrive in America. It is time to change that.
So in our modified ISI, the United States would again be fostering infant industries, such as a steel industry perhaps, and a semiconductor industry, a rail industry, a shipbuilding industry, an electronics industry, and a reinvigorated energy industry, and others. Government would not be the prime mover nor would it provide subsidies. It would permit any country to build in the United States and all takers, American and foreign would be given most favored status and lots of positive press on government websites and on any government sponsored medium simply by operating in America with a preponderance of American employees.
Until the Wilson presidency (2013-2021), our protectionist systems (systems that those who hate America also hate) had brought in up to 50% or more US revenue in tariffs and kept all other taxes relatively low. One of the first events of Wilson's presidency was the passage of the Underwood Tariff as part of the Revenue Act of 1913. This reduced tariff rates from 41 to 25%. It also created the first federal income tax after the passage of the 16th Amendment. The income tax was a means to compensate for anticipated lost revenue because of the reduction of tariff duties. Tariffs had been the largest source of federal revenue from the 1790s to the eve of World War I, until it was surpassed by income taxes.
During the industrial heyday, America prospered and the best industrial complex of any country in the history of the world was formed right here. It is time to return to those days of prosperity and this time the people, not the corporations are # 1.
The profit motive, along with protectionism through large tariffs built the backbone of America. Likewise, the profit motive and corporations protecting their profits while giving the full hand to nose salute to the American people dismantled the most successful industrial complex of all time.
It is the purpose of the reindustrialization to reestablish America first and foremost as a self sustaining and highly successful country.
As a plus for the environmentalists, while we are building back our country, we can design all of the necessary clean industry equipment into the blueprints for new plants and to existing plants as they are being refurbished.
We can do it if we choose to do it!