BUSINESS
01/18/2011 04:44 pm ET | Updated May 25, 2011

Hu Visit A Reminder Of 1 Way China Leaves U.S. In The Dust

As Chinese President Hu Jintao visits the United States, much of the domestic commentary is focused on how his country should be more like the United States -- how it should properly value its currency, improve its human-rights record, open its borders to free trade, consume more and save less.

But as the leaders of the two biggest economies meet, it's hard to overlook the fact that one is lagging and the other is booming. That raises the question: Are there ways that the United States should be more like China?

And the answer is: Maybe one.

China, after all, has one heck of an industrial policy. Its government is actively involved in growing its manufacturing base, using vast government subsidies, tariffs and incentives to make sure more and more of its citizens have jobs making things.

By contrast, the United States doesn't have an industrial policy at all.

What is an industrial policy, exactly? In the United States, it would entail a sustained program to encourage homegrown industry. It would include a more assertive trade policy (you block our goods, we'll block yours), but also such things as chartering a national development bank, ending the favorable treatment of foreign investments, creating new tax credits for research and development, and actively discouraging offshoring, for starters.

Leo Hindery, a former CEO who heads the US Economy/Smart Globalization Initiative at the New America Foundation, is one of the foremost advocates of a U.S. industrial policy.

"I think you have to start with the premise that a country as big as ours -- the largest of the developed economies -- can't survive with less than 8 percent of its men and women making something," Hindery told HuffPost.

According to the latest figures, about 7.6 percent of the workforce is currently engaged in manufacturing.

"It needs to be 20 to 25 percent," Hindery said, "and it needs to be 20 to 25 percent of GDP, otherwise the gap that you have to fill is achieved only through consumer credit."

The problem is simple, he said: If we aren't making enough ourselves, then we buy it elsewhere, and "you're left with this crushing perpetual trade deficit."

One of Hindery's greatest frustrations is that, contrary to the rhetoric of the 2008 presidential campaign, the Obama administration doesn't seem to appreciate the particular value of manufacturing jobs.

"What happened was he dropped in the [Robert] Rubin team, and [Larry] Summers," Hindery said.

The Economist magazine last year credited Obama with a sort of accidental industrial policy, in the form of his massive bailouts of financial institutions and car companies.

But Hindery scoffed at such an argument, noting that the bailouts didn't come with the right conditions. Obama could have insisted that GM and Chrysler keep manufacturing jobs in the U.S. as part of the deal, he said. Instead, they actually made big investments overseas.

"Next bailout, have them promise that the next plant expansion will be in Flint," Hindery said.

Sen. Sherrod Brown (D-Ohio), is among the many other proponents of an industrial policy. In a blog post on HuffPost, Brown wrote:

To realize our full potential, we must stop ignoring the challenges that manufacturing faces. We need a national plan -- a national manufacturing policy -- that aligns federal actions with the goal of strengthening our manufacturing sector.

One feature he suggested:

There should be a coordinated federal response when a community experiences massive job loss.... The federal government has a strategy to assist communities hit by a natural disaster. We must follow the same protocol when a community is devastated by a major plant closing.

Author and editor Robert Kuttner recently wrote in The American Prospect about his conclusion:

[T]hat trade policy and industrial policy are inextricably linked; that we need a radically different approach to trade, so that the global trading system has a single set of rules rather than a maze of double standards; and that we need standards to differentiate legitimate development policy from predation, as well as buffers to protect our legitimate interests when other nations pursue predatory policies. And just as we need to drop the fantasy that other nations admire our fantasy of laissez-faire, we need to jettison the delusion that industrial policy doesn't work. Judging by the success of Japan, Korea, China, Brazil, Taiwan, and the U.S. at an earlier stage of our history, it works just fine. All that remains to accomplish this is to wrest control of policy-making from Wall Street, so that Main Street can have healthy industries once more.

But Robert Borosage, co-director of the Campaign for America's Future, warns that the opposition to any such move would be fierce:

Just as the insurance companies impede sensible reforms in health care, and big oil and coal block vital changes in energy, and Wall Street guts vital reform of finance, global corporations and banks will spend a lot of money to defend the unsustainable trade policies of the old economy.

Writing in The American Prospect, Richard McCormack summed up the long decline of American manufacturing this way:

Americans stopped making the products they continued to buy: clothing, computers, consumer electronics, flat-screen TVs, household items, and millions of automobiles.

And while Wall Street financiers and the offshoring multinationals who finance the U.S. Chamber of Commerce are dead-set against government intervention on behalf of local industry and American workers, that doesn't mean the rest of the business community agrees.

Andy Grove, the co-founder of Intel, made news last summer by writing that "while free markets beat planned economies, there may be room for a modification that is even better." He explained:

Today, manufacturing employment in the U.S. computer industry is about 166,000 -- lower than it was before the first personal computer, the MITS Altair 2800, was assembled in 1975. Meanwhile, a very effective computer-manufacturing industry has emerged in Asia, employing about 1.5 million workers -- factory employees, engineers and managers. ...

The first task is to rebuild our industrial commons. We should develop a system of financial incentives: Levy an extra tax on the product of offshored labor. (If the result is a trade war, treat it like other wars -- fight to win.) Keep that money separate. Deposit it in the coffers of what we might call the Scaling Bank of the U.S. and make these sums available to companies that will scale their American operations. Such a system would be a daily reminder that while pursuing our company goals, all of us in business have a responsibility to maintain the industrial base on which we depend and the society whose adaptability -- and stability -- we may have taken for granted.

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Dan Froomkin is senior Washington correspondent for the Huffington Post. You can send him an e-mail, bookmark his page; subscribe to his RSS feed, follow him on Twitter, friend him on Facebook, and/or become a fan and get e-mail alerts when he writes.