08/14/2012 05:40 pm ET Updated Oct 14, 2012

On Manufacturing, Ryan is Following the Wrong Founding Father

In his first speech as a vice presidential candidate, Congressman Ryan stated, "We won't replace our founding principles... we will reapply them!" Democrats should agree completely with an invocation of our founding principles, and point Congressman Ryan to Hamilton's Report on Manufacturing from 1791 and other writings. Hamilton, after all, is the founder who is most responsible for helping America become an industrial superpower. His ideas have formed the basis of the American economic system. The question is whether Congressman Paul Ryan is willing to embrace the role of government that Hamilton advocated?

Hamilton wrote that, "In matters of industry, human enterprise ought doubtless to be left free in the main, not fettered by too much regulation, but practical politicians know that it may be beneficially stimulated by prudent aids and encouragements on the part of the government." Hamilton's words are truer now in the age of globalization than ever before considering that our manufacturers are facing competition not simply from companies, but from countries. Ask American manufacturers about their biggest challenges. They are likely to say that their foreign competitors are receiving free land or free rent from their government and easy access to capital. They are likely to complain about an artificially weak foreign currency, intellectual property theft, or forced technology transfers.

We should not copy the market-distorting policies of countries like China. Instead, we should return to our first principles. E.J. Dionne is found of quoting Richard McGregor, the Washington bureau chief, for the Financial Times, who brilliantly makes this point: "America's problem is not that it does not work like China. It is that it no longer works like America."

For nearly two hundred years, leaders in both parties, following the tradition of Hamilton, recognized that government had a role to play in helping us compete globally. Of course, the greatest credit for our success belongs to the hard-working entrepreneurs and workers who have invented and marketed new products and built businesses. But, these private sector leaders benefited from smart government policies. They benefited from President Coolidge's investment in our aviation industry, from President Eisenhower's investments in our highways, and from President Reagan's investments in our semiconductor industry. They also have benefited from a bipartisan commitment to standing up for fair trade, a good infrastructure, and a strong educational system.

As Americans, we are suspicious of ideologues, whether for the left or the right. We rejected the radical thinking of communists and we rejected the radicalism of Ayn Rand. The ideologies on the left and the right are, if anything, a European infatuation. So, when Republicans say, "let's not become like Europe," what we should warn against is clinging to any ideology fanatically. We should continue the tradition of being pragmatists.

There are practical steps we can take to assist our manufacturers. Here are a few issues where there should be bipartisan consensus, grounded in Hamilton's philosophy.

  1. Provide strategic tax incentives for American manufacturers to set up factories in the United States.
  2. Aggressively stand up for a fair currency, and against illegal subsidies, intellectual property theft, and forced technology transfers.
  3. Repeal the artificial WTO distinction between "indirect" and "direct" taxes that prevent the United States from giving our manufacturers an export tax credit, while permitting China, Germany and other countries to provide such credits to their manufacturers.
  4. Invest in our community colleges and universities to prepare a skilled, manufacturing workforce
  5. Invest in our infrastructure, and in cutting-edge science and technology research taking place at our national laboratories, at DARPA, and at ARPA-E.

If Congressman Ryan is sincere about returning to our founding principles, he should acknowledge that our government has played a role in fostering economic growth since our founding. The real competition today is not between Republicans and Democrats. It is between America, a free-market democracy, and China, a quasi-communist nation. We need leaders on both sides of the aisle to find common ground on a pro-active vision of government, grounded in our free-market tradition, to win this economic battle.

Ro Khanna has recently published a book entitled, "Entrepreneurial Nation: Why Manufacturing is Still Key to America's Future." He was formerly the Deputy Assistant Secretary of Commerce in the Obama Administration from 2009-2011.