Can We Buy American?

Can We Buy American?

The manufacturing base in America has been on a slow but consistent decline since the end of World War II. Creative Destruction, the theory of successful businesses being built upon failed models, proliferated within the United States; more recently our failed domestic industries have been reborn overseas.

In the era of globalization, new factories and resourceful entrepreneurs have found their way to foreign soil finding rewards in cheaper labor, tax advantages and limited government oversight. This raises the question of free competition and whether as taxpayers and consumers we should have access to the best product at the best price regardless of origin, or will ‘buying American’ actually solve our deep-seated industrial problems and encourage domestic efficiency?

A provision within the infrastructure stimulus package includes the phrase ‘buying American’ for many of our domestic regeneration projects. Cement and steel are the major components for building roads, bridges and improving ports. I wonder if anyone in Congress is aware that the largest individual cement facilities in the United States are owned by non-American companies. According to the Portland Cement Association more than 80 percent of the United States cement capacity is owned by overseas corporations. These companies not only produce cement, but in times of high demand, they also import cement to the United States from China, Taiwan, South Korea and other countries.

Some of our domestic steel mills are owned by Russians, Indians (not Native Americans) and foreign private equity firms. Plus not all domestic steel mills can produce the type of steel required for infrastructure. Steel for infrastructure can easily be routed by foreign producers through Mexico and Canada using the NAFTA Protocol and skirt any punitive measures such as the tariffs imposed by the Bush Administration. Even protectionism can be circumvented.

To go a step further, workers will often find their picks and shovels made in China, their earth moving equipment made in Japan and their engineering software enhanced by a technician in India.

This begs the question: What indeed is an American product?

This is a different economic world than the one of our parents. If subsidies or protection are allocated to domestic industries, they must truly be used for improvement to make their products competitive on a worldwide basis and not simply implemented for political advantage. Global economics have become extremely complicated and interlocking relationships make it impossible to deem anything as truly American.

Protectionism during the Great Depression (i.e. the Smoot-Hawley Tariff Act) proved to be one of the greatest disasters to the American economy. This is a time to look beyond popular political expediency and turn this crisis into an opportunity to regain our leadership in business by being creative, realistic and not insular. Retaliatory trade policies can hurt America far more than popular political rhetoric can help.

I have been involved in international shipping and trading, and for nearly 40 years I have seen newly created companies in America born through the global marketplace. Many have thrived and fostered employment. Some continue to expand in spite of the current financial crisis. The future of America is global and any hindrance to that potential will stifle innovation and leave us far behind on the international playing field.

 

 

The March Forth

Every monumental change in a nation’s future must have a name to allow the citizens to rally, make placards and chant. We had The New Deal, The Great Society, and as the mortgage bailout was unveiled on the 4^th of March, I vote for naming it The March Forth. A friend urged me to use The Great Leap Forward but research revealed that slogan had been put to better use elsewhere.

 

The blame game for our faltering economy is reaching a fever pitch with Republicans blaming Democrats (and vice versa) and the public blaming the bankers, Wall Street, the regulatory agencies, mortgage brokers and Congress. Everyone is at fault, but let’s not forget the actuaries. In spite of lower credit standards, no one foresaw the possibility of a burgeoning default rate resulting from less credit-worthy mortgage holders. Today, no one can pinpoint whether the excessive default rate caused the housing market bubble to burst, or if the bubble burst first causing the subsequent delinquency rate to explode.

 

Currently, more than 90 percent of Americans are meeting their mortgage obligations, while more than 10 million homes are in default, arrears or foreclosure. No matter how Congress may spin it, those homeowners who have been prudent with their finances, and often made many sacrifices, will be paying for the mistakes of others through higher taxes. If this is the American way, then we should all be prepared to take The March Forth.

 

An alternative might be to start thinking out of the box. Suppose the government enacted a one-time program allowing home purchases by foreign nationals able to pass a security investigation in exchange for permanent American residency. Only cash buyers would be eligible for this program with a floor of $400,000 and even those in America illegally could be candidates.

 

Or suppose the government gave returning service personnel the option for a subsidized home purchase instead of the college tuition assistance program offered by the military. The government could take an amount equal to the estimated college tuition and provide that as a lump sum down payment then finance the balance through Fannie Mae at the current low interest rates. This would allow home ownership to responsible veterans and create an opportunity that may have never been possible for them.

 

Finally, many individuals, some of whom have made billions of dollars through fraud and transgressions, should have a greater role in the bailout. Recently a number of Countrywide executives, who profited enormously throughout this financial calamity, have established a fund aimed at maximizing investments on foreclosed properties, often the same properties that were financed through their company’s sub-prime lending. Maybe some windfall or extraordinary tax should be levied on those funds?

 

It is time the lending institutions begin to bundle these foreclosed properties and selling them as packages to private investors. It would be efficient and it is the same template used during the Savings and Loan crisis. The housing market cannot recover until the overhanging malignancy of too many homes are removed from the marketplace and the banking industry cannot recover until value for these properties are established.

 

As we collectively march forth attempting to rectify many failings in our government’s regulatory incompetence, I doubt the correct path is for government to right previous wrongs through greater largess at the expense of the taxpayers.