Diane Alden
Wednesday, April 30, 2003

In its best form, capitalism is a system which is not biased towards any group of people or special interest. At its best it emphasizes and supports a level playing field on which as many individuals and economic entities as possible will progress.

When capitalism is working correctly no particular economic interest has a comparative disadvantage. Capitalism doesn’t ask for favors from government nor does it expect government to pay its bills or change the playing field in its favor. In the past, and of necessity, it must struggle to maintain a kind of balance in the economic realm and that has to do with the actions of a free market. When it works well it frees and supports the political and social realm so that a range of good can be accomplished for the greatest number of people.

The fact is in the United States today, at least on the transnational or multinational economic (globalist) level, we do not have capitalism. What we do have is corporatism.

Global corporatism has nothing to do with the free market. It is instead about the concentration of economic ownership in fewer and fewer hands. It is about having the taxpayer pay for its mistakes and covering its investment losses through bailouts and government intervention in the market place. It is about the central management of a single global economy by the World Trade Organization or speculation and bogus monetary policy through the IMF, or the machinations of a bunch of bureaucrats in Brussels or Davos. It is about derivatives and junk bonds and paper chasing. It is about a number of large American corporations opting out of their responsibility to the nation-state known as the United States of America.

The problem for the United States at this moment is that an economic and political imbalance favors large transnational corporations. Those multinational or global entities owe no allegiance to the United States, to communities or to U.S. workers or even to the very idea of the nation-state.

As the insightful economist and commentator Robert Locke explains: "Capital increasingly views nation states and traditional values as impediments to a borderless, frictionless, anything-goes world in which everything is organized for the sole purpose of making money. If one accepts the premise that the most important thing in life is money, one accepts their consequences."

Furthermore, “corporatism is the economic system that has largely replaced capitalism in this country. Like capitalism, it is based on private ownership and management of the means of production. Unlike capitalism, the free market is not trusted to provide goods, but is systematically manipulated by government to do so.”

Former Harvard professor Fred Weaver adds, “Corporatism accepts private ownership of business but sees economic life as a mainly institutional activity that occurs under a bureaucratic supervision rather than in a free marketplace. It likes oligopoly and mistrusts competition. It accepts representative democracy but sees political life as a process dominated by economic, ethnic, and other interest groups rather than with individual citizens.”

Honest to gosh, pure and true capitalism is about self-interest. If Americans pay attention to their self-interest they must begin to understand the mindset of transnational corporatism or globalism.

If we are to be true to capitalism rather than the goals of transnational corporatism, Americans must conclude that self-interest is one of the primary standards of free market capitalism. That being the case American political and social self-interest, as well as our national cohesion and identity, should trump the needs and desires of transnational, multinational corporations.

Nation-States and Self-Interest

Someone once defined the nation-state as communities of people that share responsibility for their mutual well-being. The advantage of the nation-state is allows people the freedom to determine their future to the best of their ability. This is something which multinational, transnational corporations don’t care about.

Multinational corporations don’t care about any of this except as it impacts their economic interests.

In the light of this new reality, Americans must begin doing what they must in the name of their security, their jobs, their political, social and economic progress and our national cohesion including the well being of the United States of America.

There are several things, which are destroying the United States as a cohesive nation-state. We have replaced capitalism with corporatism. We have embraced an unacceptable amount of state socialism, government accounts for 35 percent of our GNP and government has done nothing but grow for the last 80 years. In the 1990’s, government spending at all levels rose from less than $2 trillion in 1991 to over $3 trillion in 2001.

Government does not produce wealth it just sucks it up into a vortex where nothing but paper shuffling and certain services are offered. Services that should be necessary include the military and maybe one or two others but not services across the board. Government is not efficient; it has no reason to be. Its funds come from someone else, the taxpayer, who will go to prison if they are not forthcoming. It spends money on useless studies and funds organizations through grants and loans that have more in common with V.I. Lenin or Fidel Castro than with Madison, Hamilton or Jefferson.

We have fractured into identity groups. We have lost the family, the church, and the schools as the lynch pin of society. We have allowed a corrupted culture to demean our social, ethical and moral standards. We failed to maintain our borders and end massive immigration that further dilutes our cohesion and culture and security, while it has allowed the social welfare state to grow and corporatism to flourish.

Furthermore, institutions such as public education as well as dual allegiance to foreign countries no longer contribute to the formation of a unique American identity. Nor is loyalty to the United States and to the United States alone a must for recent immigrants or citizens.

The sad fact is the demands of the multiculturalists and identity group special interests will not stop the eventual Balkanization of America. Corporate America, the transnationals, do nothing to help America in that regard. Rather they work against the creation of a cohesive body politic or a diverse but unified America. Borders and identity mean nothing to them and the interests of the United States and their interests are no longer one and the same as they were during the Cold War.

Meanwhile, corporatism and government have failed miserably to be concerned as we lost manufacturing, small-scale agriculture and natural resource production to other countries.

Corporatism failed to be responsive as high end, high tech manufacturing slipped away. This has done mortal damage to our ability to make the things we need for our own security and independence. Furthermore, in the name of “free trade” and using unrestricted immigration the suppression of wages for blue collar and the lower middle class continues which is going to further fracture society along economic lines.

Dr. George Borjas, Professor of Public Policy at Harvard, has stated: “In dragging down wages, immigration currently shifts about $160 billion per year from workers to employers and users of immigrants' services. … Immigrants today are less skilled than their predecessors, more likely to require public assistance, and far more likely to have children who remain in poor, segregated communities.”

What is worse, we stopped making “stuff.” Instead we sell “stuff” at Wal-Mart. “Stuff” made in China.

One Nation Under Wal-Mart

In March, Fortune magazine related that Wal-Mart comprises 2.3 percent of the GNP, making it America’s and the world’s largest corporation. It is the largest employer in 21 states. Yes, it offers good benefits and a 401K plan and promotes from within. However, the jobs offered do not have nearly the salary or wage potential or crucial nature of the high-end manufacturing jobs that have left the U.S. since the early ’90s.

In addition, the jobs at Wal-Mart are not nearly as critical to U.S. interests as those which produced engines, turbines, refrigeration equipment, metallurgy products, pipeline equipment, generators, earth moving equipment, flat panels, machine tools, and medical supplies like replacement joints and surgical equipment. Last year, 422,000 manufacturing jobs left the U.S. for China and other nations. Since the early ’90s, crucial manufacturing has lost a million and a half jobs, mostly to China, India and countries with low wages and high educational levels.

The changing composition of imports from China over the last 10 years has led increasingly to job losses among higher-wage and more-skilled U.S. manufacturing workers. Although in 1989 only 30 percent of imports from China competed against goods produced by high-wage industries in the U.S. market, by 1999 that percentage had risen to 50 percent.

Finally, we allowed obscenely high levels of taxation and a two-ton gorilla regulatory state to dampen the efforts of small to medium business to replace the transnationals. We do very little to hurry the development of local and regional economies as much as they should be and could be.

In that regard, what we need is not a 50 percent dividend tax cut but a 100 percent dividend tax cut, which will help small and business more than BIG business. Otherwise the guys on the small end of the spectrum, the individual owners and entrepreneurs are paying taxes on the same money twice. If RINO Republicans like Olympia Snowe and Lincoln Chaffee don’t understand that they need to return to a basic course in economics.

I wonder if Charles Grassley or John McCain understands that the United States is one of only three countries that taxes dividends fully. This puts U.S. corporations, and especially U.S. workers, at a real competitive disadvantage. Manufacturing, high-tech, and other capital-intensive industries are especially vulnerable.

The ’90s bubble covered up the fact that we are exporting jobs and technology to China and countries like India. Because of that, America’s trade deficit now exceeds $400 billion per year, triple the levels of a decade ago. It isn’t just that American companies are not competitive abroad it is that other countries do not live up to the trade agreements that they sign, including China and Japan.

While China cut the value of the Yen in 94 to make its goods competitive according to Goldman Sachs if the dollar was cut 43 percent decline it would only cut the trade deficit in half. One of the reasons for the big Asian crash was the fact that China did cut the value of the yen, leading to the mess in ’97-’98.

The Multinational China Syndrome

Nary a multinational corporation like Microsoft, Dell, AmEx, or GE seems to care that China is not abiding by the WTO agreement it signed in 1993. Yet these corporations continue to expand and invest in a nation that is nowhere near becoming a free market. Nor does China allow American goods and services to enter its market. Yet China has now surpassed the United States as the focus of capital investment from around the world.

American economists tell us that the United States is suffering from a capital shortage. There is no capital shortage, the capital is simply moving to China and India.

In March, the Heritage Foundation released a report that is indicative of the track record that the corporate version of “free trade” and the free market have produced between China and the U.S.

Heritage relates that the American Chamber of Commerce in Beijing issued a report summarizing hundreds of instances of outright WTO violations in a broad spectrum of areas by China. They include a lack of regulatory transparency, unfair tariff and customs levies, hidden quotas, new and more complex licensing requirements, and pressure on foreign firms to reveal proprietary information or otherwise compromise intellectual property. U.S. businesses still face significant barriers to market entry in banking, agriculture, telecommunications, automobiles, internal cargo shipping, construction and real estate, and retail marketing.

China retains many of the world's highest tariffs. Moreover, China's lowest tariffs overall are those imposed on producer goods – those products that China needs to manufacture its exports. Barriers to consumer goods imports include obstacles to setting up sales and financing networks or foreign companies.

At least conservative Heritage is beginning to figure it out. It is doubtful they will go the distance however. As Robert Locke tells us “ The political class loves corporatism because it enables them to establish themselves in stable, profitable brokerage-relationships in which they manage the exchange of favors between government and the public in exchange for political support. This is a much easier way to stay in office than focusing their efforts on contentious issues and the public's fickle opinions about them.”

Yet the transnational business sector continues the scam that “trading partners” like China will change and do what they have promised. They try and convince everyone that someday in the never-never nations will open up their markets to U.S. goods as efficiently and completely as the U.S. has opened up its markets to their goods. That has not happened nor is it likely to happen for many reasons. The political class, including many who fancy themselves as conservatives do not want to face the new realities nor do they want to redefine a post Cold War change in the economic geopolitical world.

The indisputable fact is that the U.S. has run a trade deficit for decades and it will keep getting worse, blue collar wages and jobs continue the downward trend, and now white collar and technical know are leaving the U.S. as well. In addition, corporations continue to misuse American immigration and visa laws to skew the system in their favor.

Free Market – in a Pig’s Eye!

As Heritage said, we are also handing over our technical secrets to a totalitarian regime.

In that regard, the February 2003 issue of Business Week informs us that Microsoft's "Bill Gates was in Beijing recently meeting with President Jiang Zemin and other government officials and promising to give the Chinese access to one of the most zealously guarded industrial secrets in Corporate America: the Windows source code. That's a big step for Microsoft in any country. In China, where piracy is rampant, it's a huge leap.” (BW Online, 2/10/03)

Microsoft is spending $750 million on Research and Development in China, and $400 million in India in the next three years. At Microsoft's Beijing research lab, one-third of the 180 programmers have Ph.D.s from U.S. universities.

Another example of critical technology leaving the U.S. or being sold to China includes the sale of Indianapolis-based Magnequench Inc. and the elimination of 400 jobs. Worse yet, it involves the sale of very sophisticated technology used to produce critical parts for smart bombs.

None of the multinationals apparently worry that a fifth of all brand-name goods sold in China are commonly held to be fakes. That includes everything from batteries to cigarettes. Despite the U.S. having a bilateral intellectual-property protection agreement with China, 94 percent of software installed there in 2000 was pirated, up from 91 percent in 1999, according to the Business Software Association, a U.S. piracy watchdog.

Additionally, U.S. trade and foreign investment data show that U.S. multinational firms in China act to promote Chinese exports to the U.S. more than these firms aid the sale of U.S. goods to China.

Nor are we told that the rapidly growing U.S. trade deficit with China is directly linked to the growth of multinational firms operating in China. Of China’s more than $200 billion in exports in 1998, over 40 percent had their source in multinational firms operating in China (Ministry of Foreign Trade and Economic Cooperation 2000).

Since the early 1990s, more than $800 billion has been invested, predominantly in a group of free trade zones located along China's coast. Wal-Mart Stores, for example, purchased about $14 billion in products from its Chinese subsidiaries last year, which represents about 13 percent of total U.S. imports from China. The electronic conglomerate Philips operates 23 plants in China and exports $5 billion worth of goods each year to Western markets.

Nonetheless, China has some good reasons for not opening its markets to the world. The majority of the Chinese people don’t have the money to buy. Wages and working conditions remain at a sweatshop level for the majority while unemployment is high, especially in rural areas. A few are getting rich but the vast majority must accept whatever the world’s new oligarchs and globalists want to dish out.

Europe and Japan do have the money and the ability and America remains their primary market even while they buy very little from us in comparison. The trade imbalance continues to accelerate and the U.S. trade deficit reaches record highs. We still have a high trade imbalance with Japan and that has not changed in decades.

Europe and Japan – especially Japan have run significant trade surpluses with us, not because our products are not competitive in price and quality, but because the EU and the Japanese government have pursued mercantilist policies which create barriers to them. The economic bubble of the ’90s has covered all this up, but the U.S. has no more bubble and there will be none anytime soon.

Now it turns out that Microsoft and Dell, Black and Decker, and hundreds of U.S. companies are bailing out of the U.S. in favor of countries with little or no regulation, low taxes, cheap labor, or populations with advanced training and education. Populations that either work in sweat shop conditions or who work for a fourth of what Americans receive for the same jobs; India is a prime example.

As the multinationals bug out they don't remember the promise of illusive markets for American workers in China and India, Africa and Asia when they demanded trade treaties or Most Favored Nation status for this country or that. They will not speak about stagnant or flat wages for both blue collar and now white-collar or technical workers as well.

The multinational bubble continues as they invest trillions of dollars in markets other than the United States.

As our trade imbalance grows it doesn’t seem to register that it is their problem too. In fact, too many of these companies view the world as nothing BUT a big market.

They have forgotten that even “free” markets don’t guarantee their safety, nor do markets implement the rule of law so that multinationals can survive and prosper. It is nation-states who do that job.

Multinationals will not find American fighting men and women dying so that Microsoft can live on. American soldiers fight and die for their country and no amount of money can buy that kind of loyalty and devotion. If multinationals believe otherwise – go tell it to the U.N. or Lehman Brothers or Goldman-Sachs and see how far you get!

While the "bullish" are waiting for the return of the stock market, they would do well to be more interested in the return of American jobs and U.S. economic growth. The bulls who think wealth lies with the multinationals might want to rethink the wholesale dumping of technology on totalitarian regimes which will someday use it against us. The same coalition might once more appreciate loyalty to the nation-state that allowed them to become powerful and rich in the first place – the United States of America.

If multinationals like Microsoft, or Loral, GE or Boeing don’t care about U.S. security or American communities, perhaps it is past time to enforce a little “free wheeling” discipline on them. How about imposing a value added tax on whatever goods they ship back to the U.S. from their new best buddies in China, the EU, Japan, Russia, or wherever that corporate bottom line takes them.

In the long run, America can do without multinationals because new companies, younger companies will make us grow again and thrive economically. Remember that when it comes right down to it – world markets need us more than we need them.

America’s wealth is not in a rising stock market. Our wealth is in what America creates and who its people are. America’s wealth, is in the things it must learn to make again, the hard things, the kind you put in a box that require sweat and effort, creativity and technical ability.

America’s wealth is in the can-do spirit of its people not in the corporate boardrooms of companies that could care less about the survival of this nation as MORE than an economic construct. A construct, which will enhance their bottom line as American markets provide millions to CEOs whose worth as capitalists is questionable as in the case of Enron, Tyco, Global Crossing and a host of others.

We will grow again if we can convince the politicians that government does not create wealth, that government must get off the backs of small to medium business by reducing the regulatory nightmare and the tax burden. If we can do that there will be no stopping us.

It will be the small and medium business owner and entrepreneur who help save us from the foolishness of frivolous globalism and transnational corporatism. An economic entity whose only god is its own reflection and its only loyalty is to itself. That is not capitalism that is corporatism and if it continues it will kill us as a nation.

In fact the future is promising if we bear in mind that it is our political, religious, and social freedoms that created the wealth of this nation and not vice versa.

Next Two Times: Part II: Goodbye, Good Jobs

To comment, write alden@newsmax.com.

References:

Dr. George Borjas
Dr. Norman Matloff
Robert Locke
Forbes – Betsy Shiaffman
Fortune
Business Week
Financial Times
Economist
Alan Tonelson Research Fellow at the U.S. Business & Industry Educational Foundation and the author of “The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards” (Westview Press).
James Burke: Policy Paper, “US Investment in China Worsens Trade Deficit”

Editor's note:
Sir John Templeton reveals how to profit during bad times – Click Here Now