The key to boosting domestic manufacturing

From Wikimedia Commons

A watch made in Switzerland with the distinctive “Swiss made” label

The worst of the crisis in the Eurozone is now widely considered to be over and the economy recovering, with the situation in Greece having moved away from the state of near collapse that it was at several years ago, and Ireland having recovered significantly. However, for people in most Eurozone countries, the situation is not much better than it was two years ago. In Spain, youth unemployment stands at an astounding 56.1%. Italy has seen its manufacturing industry, long one of Europe’s strongest, begin to fade. In France, Europe’s second largest economy, the situation is getting slowly worse and worse, with unemployment having risen .5% in November. The French are pessimistic and feel that their country is in decline.  A member of the French National Assembly, Jean Lassalle, has just completed a walking tour of the country, talking to people he met along the way about the state of modern France. He heard stories of a country “without hope”, and by talking to real people he created a better economic picture of the country than any statistics from Eurostat can.

The end of the crisis did not indicate anything like a recovery. Furthermore, these declines are not merely the result of the unfortunate boom and bust cycles that plague capitalist economies. What we are seeing in Europe is the continuation of the long decline of most of Western Europe, with the notable exception of Germany, that has continued since the mid-Twentieth Century, or even earlier, with only the brief interruption of the boom the Euro brought, and now to be followed by another long decline. Here we must pose ourselves a question: Why is Europe declining? Why, for that matter, is the United States declining? The obvious answer is that the economies of the West are being overtaken by Asia. This is certainly true, because Asian economies are growing at an enormous rate that outpaces anywhere in Europe or North America. Asia is now the world’s center of manufacturing, and, in some ways, it deserves to be, considering that it is the most populous continent on the planet. So, Europe is declining because Asia is taking over. That seems to make sense, as nearly every manufactured product an European or an American buys at a store has a “Made in China” label on it, except for textiles, which are generally made in some third world country such as Bangladesh, but why does growth in Asia create decline in Europe? Now we get to the heart of the issue and the answer to the aforementioned question, which is: Globalization.

Economic globalization, supported by virtually every economist and accepted by politicians at the behest of the multinational corporations that fund them, has created a global economy where manufacturing goes to countries where conducting business is cheapest, a.k.a. countries with little environmental regulation, few workers’ rights, low wages, little oversight, and large workforces. Since the instability of Africa makes it a dangerous place to do business, it is the countries of Asia that have grown thanks to globalization, notably China, Vietnam, and Bangladesh. Even established economic powers of Asia, Japan and South Korea, which grew because they met the aforementioned conditions for globalization to benefit them, have begun to see business move to the newer Asian economic powers. They are not yet in danger of major manufacturing declines, although Japan is struggling with an aging  population, but they will be in the not-so-distant future.

And what has been left behind in Europe and the United States, where many of the companies now manufacturing cheap goods in Asia originated? The answer is, not much. Banking sectors have become bloated, services sectors have grown, and the backbone of Western economies have become large office buildings in New York , London, Paris, and other financial centers, which employ bankers, accountants, lawyers, bureaucrats, and other products of the service economy. The economies of Western nations have become insubstantial, service-based sand castles which crumble at the slightest wave in the global economy. With the very large and sometimes very literal waves that will increase in size as global warming destabilizes the global economy, as it inevitably will, the decline of Western economies will increase in speed.

Most economists suggest that the solution to this is for Western nations to increase their competitiveness by cutting minimum wages and decreasing regulation. Many countries have begun to do this, but it is an enormous mistake. The economic growth of Asia has come at a price that is much more than any country should want to pay. China is struggling with extremely hazardous air pollution caused by its lack of environmental regulation, and workers in China, Vietnam, and Bangladesh are all badly treated and underpaid, and work in unsafe conditions. Many of these workers handle hazardous chemicals with little or no protection. And must importantly, these countries still have very large portions of their populations living in poverty, even the ones who are employed in factories. The people of these Asian countries have gained very little from their countries’ economic growth. Globalization is good only for multinational corporations. Governments should remember that their duty is to protect and better the lives of their people, and, whatever the US supreme court may say, corporations are not people.

In most European countries, and indeed the United States, manufacturing is declining, frequently being replaced by lesser-paying temporary service jobs, or even no jobs at all, as the high unemployment rates of Southern Europe show. The trend must be reversed. The essential question is, how? Several countries have managed to retain strong manufacturing industries against the odds, notably Germany, which continues to excel do to a strong education system and a culture of innovation. Switzerland has remained strong due to the excellent reputation of its products, which have “Swiss made” prominently displayed on them (in English, strangely). Clearly, other countries should follow the examples of Switzerland and Germany. However, a more reliable and faster approach is needed, one that is more internally focused instead of globalized.

There is certainly a big enough internal market in each country for it to sustain its own manufacturing industry. If Spain made everything consumed in Spain, we certainly wouldn’t be seeing such high unemployment rates. I’m not suggesting that countries should be completely insular, nor am I saying that countries should ban imports from abroad, but increased domestic manufacturing will have countless benefits: lower unemployment, which will save the government money that would have gone to unemployment benefits; economic growth; higher-quality products, since domestically made products can be better regulated; increased exports; and numerous environmental benefits, since the global shipping industry is tremendously wasteful, and Western nations have much stricter environmental laws than most Asian countries.

My solution is this: create subsidies to lower the price on domestically made products, but only when bought within the country. These subsidies would be uniform for all manufactured products, instead of being specific the type of product, as tariffs tend to be. Only the customer would experience the reduction in price, meaning that no government money from these subsidies would be given to the corporations that manufacture the products. Essentially, the government would pay part of the price that the customer would normally pay. For example, a Frenchman buying a French-made Renault in France would see the price of the car reduced significantly from what they would pay for a foreign-made car, including a foreign-made Renault. However, a German buying a French-made Renault would see no price reduction. To stop corporations or retailers from exploiting this by simply raising their prices, the state would somehow have to asses the “true price” of each product by adding the cost to manufacture the product, the manufacturer’s profit, and the retailer’s profit. Manufacturers and retailers that didn’t comply wouldn’t be able to have their product’s price reduced. This system would encourage manufacturers to manufacture domestically and also to set fair prices, but it would have the downside of creating a good deal of bureaucracy, which is never a good thing. However, I think the benefits would outweigh the drawbacks. The money for these subsidies could come, in many countries, from a reduction of other subsidies that currently exist in a way that tends to negatively affect the economy. In addition, a uniform tariff on all imported manufactured goods would help pay. The advantage of subsidies, however, if they can be afforded by the country, is that they lower prices, which helps the lower and middle classes. A lot of the proponents of economic globalization claim that globalization lowers prices, which is partly true, but since it lowers wages more than it lowers prices the effect of this is not beneficial. If income taxes have to be raised to pay for the subsidies, that is okay, since income taxes do not burden the poor as much as higher prices. Raising taxes is not a necessity, however. Most Western governments have plenty of revenue, they just put it to the wrong uses. This system of subsidies is much better for the economy and especially for small- and medium-sized businesses than the current system employed by countries such as France, where subsidies are either a way for the government to costly keep dying giants like PSA Peugeot Citroën afloat, or free money that multinational corporations demand from the government they keep hostage in exchange for keeping their factories in France.

Finally, something must be done about free trade areas. These are a major contributor to the decline of manufacturing in many countries. I’m not necessarily against regional trade blocs such as the Eurozone, but there should be more barriers within them. Keeping manufacturing alive in the West is vital, and countries may need to go to drastic measures to achieve this. Trade area treaties need to be renegotiated to allow a solution of the type I propose to be carried out without violating the rules of these trade areas. Whether the political will exists to implement subsidies of the type I suggest, I do not know. Any attempts to carry out such protectionist policies will inevitably meet opposition from big business, economists, and the World Trade Organization, but it is essential for Western countries to salvage their dying manufacturing industries before they are gone completely and beyond salvation.

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