A cargo ship loads up as US Trade Representative Ron Kirk delivers remarks from the docks of Baltimore harbor on 20 September 2010 about the significance of exports in creating and supporting jobs in Maryland. Kirk discussed President Barack Obama's National Export Initiative, which aims to create two million jobs nationwide by doubling American exports to the world, and the US-Korea Free Trade Agreement.
If the US wants to jump start its sagging economy, American policymakers should turn their attention not toward innovation or education reform, but export growth. Transforming the US into an export-led economy will require a transition away from the country’s cancerous “Corporate America” culture—but it will also solve plenty of other problems along the way.
The debate over America’s long term economic recovery is exhausting. Republicans want smaller government, as long as they are not running it. Democrats want to limit spending, as long as they don’t control the White House. Both parties seem uncreative. They sometimes talk about innovation, at other times about education reform.
But perhaps what leaders from both sides of the aisle are really missing is a single idea: America should reinvent itself as an export-led economy. Export creates jobs and brings fortunes to America and Americans. In his State of the Union, President Barack Obama talked about the creation of 300 thousand jobs because of trade deals with Asian countries. He also expressed interest in education reform.
But experts have shot holes in both arguments. On the agreement of selling China $45 billion worth of exports, many analysts argued that this potential surge in US exports comes on the back of America finally transferring aircraft technology that the Chinese are determined to copy. Once China can manufacture its own jets, Americans will be taking their trips in airplanes “made in China.”
On education, many argue that America’s schooling suffers from fundamental flaws. Even where the government has shown the money, students are still low-ranked by international standards.
Mind boggling, isn’t it? Not really.
America falling behind in export, innovation and education is all related. The reason is simple. Just look at Germany and learn why the Germans—a developed nation with no cheap labor—have remained competitive in manufacture and exports. The Germans understood that, for a developed country to remain competitive, the model of shareholders must be replaced with that of stakeholders.
Shareholders are people who buy stocks of a given company. They are never interested in the long term health of the company. They seek instant profit. When the company’s returns decline, shareholders jump to the next company with best revenues. The more yields a company returns on its stocks, the bigger bonuses CEOs receive. As long as shareholders and CEOs make easy money, companies are depicted as prospering.
This model is wrong. There is no eternal cash cow in the world. Take American airlines that have been producing profit for a long time, more often than not through back scaling or turning capital assets into liquidity.
Meanwhile over the past decade, American airlines have shrunk seating space, scrapped their free meals and started charging for luggage. Since American airlines monopolize domestic flights, they have been locked in a competition over who offers crappier service, at lower prices, and still turn profit.
Compared to world competitors, no one wants to fly American airlines overseas. But hey, lobbyists convinced Congress to approve the “Fly America Act.” Now, for any government-funded business with trips overseas, federal contractors have to fly American. In a sense, lobbyists of American airlines succeeded in imposing tariffs of sorts on government-funded trips.
Partial government protection, however, does not mean that American airlines are competitive worldwide or prosperous as business models.
In Germany, famed car factories felt the heat of globalization and world competition. Instead of scaling back or liquidating capital assets to turn maximum profit on every quarter, German automakers invited to meetings shareholders, workers unions, government officials, education professionals and mayors of cities that host factories among others. All of these have stakes in seeing German car industry remain competitive and prosperous. This makes them stakeholders.
Automakers then told everyone that their factories were the cash cow that the German economy needed to survive. Therefore, it was everyone’s responsibility to make concessions here or there to ensure the industry remained competitive worldwide. When everyone agreed to compromise, German cars maintained their high quality at competitive prices. Car factories remained open in Germany, despite some off-shoring, and next to them in German cities, Research and Development continued alongside educational institutions.
America’s shareholding business model, also known as Corporate America, has grown alone like cancer that killed all the cash cows. But America’s economy retained some vital organs that have survived so far, like the huge consumer market. This organ cannot survive independently of manufacturing, which puts money in consumers’ hands. Still the Corporate America cancer invented yet another ingenious survival tactic: National Debt and household credit cards.
Debt, however, can go only so far. In September 2008, the debt bluff was called and America’s house of cards fell. Now the government has stepped in to give a hand, but even the government cannot live off debt forever.
The cure for America’s economy will have to get rid of the Corporate America cancer by shrinking it back to the size of other stakeholders. Limiting bank and credit card company risk-taking adventures and curbing corporate lobbying power was an Obama step in the right direction. Next is cultivating the concept of stakeholding and making it hard for Corporate America to cheaply manufacture overseas and dump products in American markets.
When America’s manufacturers come back home, the market will fix education and take care of innovation, just like in the past when shareholders were as responsible as everybody else.