America: What Went Wrong?

[Rajiv]

America: What Went Wrong? is the prologue and Chapter one from an expanded version of a nine-part series originally published by the Philadelphia Inquirer in October 1991. The series generated the largest response from readers in the newspaper's history-some 20,000 letters, notes, telephone calls, and requests for reprints.

This has also been excerpted here

[Sapiens]

Re: America: What Went Wrong?

Very good find, Rajiv. Thanks for the link.

[Rajiv]

Re: America: What Went Wrong?

Some more excerpts can be found at google books
America: What Went Wrong? By Donald L. Barlett, James B. Steele

[Slimprofits]

Re: America: What Went Wrong?

Thanks for posting this Rajiv, it is an interesting book. Used copies are available for very little.

In testimony before the a Congressional subcommittee in December 1986, Alexander H. Good, director general of the U.S. and Foreign Commercial Service, summed up the government's position: "We are convinced the program has important economic benefits for both the U.S. and Mexican economies....The Commerce Department supports participation in the Maquiladora program by U.S. industry because it helps U.S. companies to remain healthy in the face of intense international competition and it keeps U.S. employment as high as possible."

Diverting operations and tax write-offs to the best possible locale is hardly peculiar to foreign-owned companies. In fact, it was invented by United States companies, with the assistance of members of Congress who rewrote the government rule book in 1976 to encourage the practice. They did so whey then amended the Internal Revenue Code to provide tax credits for American companies that established subsidiaries in United Stats possessions, notably Puerto Rico, where the islanders are United States citizens.

In essence, the provision allows subsidiaries to transfer profits from Puerto Rico to their parent companies in the United States - without paying taxes on those profits. Thus the United States government will provide a tax break to a company if it terminates the jobs, say, of 800 workers in Elkhart, Indiana, who earn an average of $13 an hour. That is, the company will get the tax break if, at least in part, it replaces the $13-an-hour workers in Elkhart with $6-an-hour workers at a plants it builds in Puerto Rico.

Did Congress do something similar, easing the way for companies to move operations to China, India, Singapore, etc?

FIRE economy backgrounder:

As recently as 1977, acording to statistics compiled by the United States Patent and Trademark Office, the ten corporations that received the largest number of patents broke down this way: Seven were American-owned. Three were foreign-owned. By 1989, those statistics were reversed. Seven of the top ten corporate patent-holders were foreign-owned...

[..]

The makeup of the foriegn companies on the list also had changed significantly. In 1977 two companies were German, one was Dutch. There were no Japanese companies. By 1989 there were five Japanese companies among the top ten, one German, one Dutch.

In 1977 American companies received two of every three patents granted to corporations. By 1989 it was one of every two.

While the Japanese and other foreign countries are churning out patents for new technologies and products, the United States, courtesy of the government rule book, is churning out something else: master of business administration degrees (MBAs).

All through the 1970 and 1980s, American colleges and universities turned out ever larger numbers of MBAs, a process that coincided with the steady erosion of the country's once-dominant manufacturing base. During the 1970s, MBA graduates outnumbered advanced-engineering as graduates 36,600 to 16,100 a year. The opposite was true during the 1950s, a period of middle-class prosperity. On average, 4,700 advanced degrees in engineering were awarded each year, compared with 3,800 MBAs.

In the 1980s, the gap expanded exponentially as business schools turned out 64,200 graduates yearly while engineering schools produced only 20,000. Many of the 20,000 were foreign nationals who received their diplomas in this country and returned to their native lands.

Let's summarize the degrees and the numbers. Advanced engineering graduates do the kind of work that leads to new technologies and products, which in turn lead to the creation of new manufacturing jobs that pay middle-class wages. MBAs do the kind of work that leads to new financial products - including assorted credit instruments like junk bonds - which in turn lead to the creation of a few high-paying professional positions, a lot of low-paying clerical jobs and, quite often, the elimination of manufacturing and other jobs.

So, from the 1950s to the 1980s, the number of advanced engineering graduates rose 326 percent, from an annual average of 4,700 to 20,000. During the same time, the number of MBAs spiraled 1,589 percent, from an annual average of 3,800 to 64,200.

It was a trend the Japanese did not rush to copy. In 1989, Japanese universities awarded nearly 12,000 advanced degrees in engineering, compared with 1000 MBAs.

Akio Morita, the chairman of the Sony Corporation and one of Japan's most innovative corporate leaders, understands the competition well: "Americans make money by playing 'money games, namely, mergers and acquisitions, by simply moving money back and forth....instead of creating and producing goods with actual value."